China Tech Stocks Show Diverging Fortunes as ChiNext Index Outpaces Hong Kong Counterpart

Mainland-Listed Chinese Tech Stocks Outperform Hong Kong Peers

Mainland-listed Chinese tech stocks have been outperforming their Hong Kong peers, driven by investors' enthusiasm for artificial intelligence hardware and earnings visibility. The ChiNext Index, which counts battery giant Contemporary Amperex Technology Co. Ltd. as a member, has nearly doubled in the past year, reaching an 11-year high this week. In contrast, Hong Kong's Hang Seng Tech Index, which includes Tencent Holdings Ltd., has fallen 4% over the same period.

The ChiNext Index's gains stem from its concentration in hardware makers, such as Nvidia Corp.'s optical transceiver supplier Zhongji Innolight Co., with AI demand and tech breakthroughs in other areas like lithium batteries making earnings growth easier to forecast. Hang Seng's tech stocks, on the other hand, depend more on China's consumption recovery and face intense competition in sectors like food delivery.

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The gap in performance is largely due to the level of visibility ahead, with the clearer order-book from hard-tech making it a better choice for investors seeking resilience and certainty. Some Hang Seng Tech heavyweights, including Alibaba Group Holding Ltd. and Baidu Inc., are making progress in AI, but remain exposed to fierce price wars and margin pressures.

Consensus forward earnings-per-share estimates for the Hang Seng Tech Index have fallen about 26% from their July peak, according to Bloomberg-compiled data. For ChiNext, the picture is very different, with stronger links to AI and the global energy transition boosting demand for Chinese exports, driving the index's consensus forward earnings estimates up 42% from a June low to a record high.

Shares of CATL, as the world's biggest battery manufacturer is also known as, have surged about 90% over the past year, while optical-device makers Innolight and Eoptolink Technology Inc. have each rallied more than 800%. "If I really want growth in China, ChiNext is the place for me to go," said Leonid Mironov, fund manager at Gavekal Capital Ltd. "Optics success has been phenomenal, and it's underpinned by exceptionally strong earnings growth."

The top seven members in ChiNext now make up nearly half the weighting, raising concerns that even modest sentiment shifts may amplify market swings, leaving the index vulnerable to sharper and faster declines. CATL alone accounts for about a fifth of the index's weighting.

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For now, investors appear focused on earnings, with CATL posting stronger-than-expected results this month, while Innolight announced a 263% profit surge. The Chinese regulator's announcement this month that ChiNext-linked futures will be introduced also drew fund flows, said Jason Lui, head of AC equity and derivative strategy at BNP Paribas.