Is China’s AI Pullback Artificial?
7 Min. Read Time
Week in Review
- Asian equities were mixed for the week, as Taiwan and Japan outperformed, while Hong Kong and Malaysia underperformed.
- Robotics manufacturing giant Unitree outperformed in Mainland China this week after announcing a partnership with PetroChina.
- The Nvidia drama this week has had a disparate effect on China's equity market, weighing Hong Kong-listed AI hyperscalers on speculation of tighter US chip export controls and benefiting domestic chip suppliers.
- Optical communications companies rose mid-week after Microsoft began lobbying against a proposed ban on imports of communication equipment from China.
- In this week's video, Cultural Analyst Xiabing Su explores the latest trends from this year's 11:11 or Singles' Day sales festival, which include live-streamed sales of AI tokens.
Friday's Key News
Asian equities were mixed overnight, as Taiwan and Indonesia outperformed, while Mainland China and Hong Kong underperformed.
It was disconcerting to see Hong Kong and Mainland China taking the full brunt of the Nvidia scandal and Jensen Huang's resignation, as suddenly everyone believes China is solely dependent on Nvidia chips. It should be interesting to see how the “AI race” narrative is justified, if that’s the case. I have been highly skeptical of the “race” narrative, as China’s data center compute capacity is significantly behind the US’, as any chatbot would tell you. The market seems to be ignoring the strong financial results from China’s AI supply chain, which includes both foreign and domestic demand, and domestic semiconductors, which are manly sold in China.
It is worth noting that TSMC, SK Hynix, and Japan’s Kioxia were all lower overnight. However, Samsung managed a gain. Hong Kong-listed AI hyperscalers, AI pure plays, and the Mainland-listed AI supply chain, which includes semiconductors, semiconductor equipment, electronic equipment, and communication equipment, all fell hard. The semiconductor-heavy STAR Board fell -2.3%.
Both the Hang Seng and Hang Seng Tech indexes have given up last week’s gains, as Hong Kong and Mainland China grinded lower across the trading day in advance of next week’s financial results from internet companies. With companies in their quiet periods, thus preventing them from commenting on news and implementing their buybacks, Hong Kong short sellers pressed their bets into the vacuum of light ownership. The Hang Seng Index sold through the 24,000 level like a hot knife through butter, as Hong Kong’s most heavily traded stocks were MSCI’s two biggest China weights: Alibaba, which fell -3.46%, and Tencent, which fell -3.05% on high volumes.
China-based semiconductor foundry SMIC fell -0.45% after strong financial results reported yesterday. The stock could not hold onto morning gains of +7.3%.
Robin Li, Co-founder and CEO of Baidu, which fell -3.39%, announced several developments at Baidu World 2026 including an “ERNIE 5.5 Flash Preview: Baidu's latest open-weight foundation model featuring 280 billion total parameters and a 1M context window”.
Hong Kong resembled Omaha Beach overnight, as mega-cap banks and energy were rare bright spots. Mainland China also had mega-cap banks, energy, liquor, and telecom all outperform, which could mean that Central Huijin, the financial services arm of the sovereign wealth fund, is buying mega-cap stocks, as they are big weights in the index.
The Mainland-listed China equity ETFs utilized by China's "National Team", i.e. investment firms associated with sovereign wealth, once gain exhibited above-average volumes for growth and policy-favored markets, along with mid and small cap indices. Meanwhile, large and mega-cap ETFs had below-average volumes. Once again, only two ETFs had volume traded above RMB 10 billion, led by a STAR Board ETF and a Shenzhen-focused ETF. These two ETFs happened to be the only two ETFs to see net inflows in the past week, as well. The ETFs have other owners than the National Team, though we will not know the extent of ownership until post Q4, since their buying did not start until October, i.e. post-Q3.
A mainland broker was quoted as stating 133 pharmaceutical companies had a profit growth of 95% year-over-year (YoY). Utilizing Bloomberg, MSCI China Healthcare shows sales growth of +4% and earnings growth of 40%, led by biotech’s earnings growth of +91% and life sciences growth of +90%, while pharmaceuticals gained +27%. It is impressive, though the names all sold off today. It was a brutal end to a brutal week. Hopefully, Q3 results will outperform next week.
October New Loans year-to-date (YTD) totaled RMB 11.42 trillion, declining versus September’s RMB 11.52 trillion, and estimate of RMB 11.60 trillion, in an indication of deleveraging, though October lost a work week due to the National Holiday. Aggregate Financing year-to-date (YTD) increased to RMB 28.61 trillion, versus September’s RMB 27.46 trillion and an estimated RMB 28.91 trillion, driven by an increase in government bond issuance. October's M2 increased +7.1% YoY from September’s 7.1% and an estimated 7.2%.
The Asia-Pacific Economic Cooperation (APEC) CEO Summit kicks off on November 17th to 18th and will be followed by the APEC Economic Leaders Meeting, which go from November 18th to 19th
Online real estate platform KE Holdings bought back 425,742 shares overnight.
Last Night's Performance
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.67 versus 6.67 yesterday
- CNY per EUR 7.37 versus 7.40 yesterday
- Yield on 10-Year Government Bond 1.61% versus 1.60% yesteday
- Yield on 10-Year China Development Bank Bond 1.74% versus 1.71% yesterday
- Copper Price
- Steel Price
