Chinese Investors Shift Funds from Hong Kong Stocks to Onshore Markets Amid Growing Interest in AI Opportunities

Hong Kong-Listed Stocks See Record Outflows as Mainland AI Shares Gain Popularity

Chinese investors are exiting Hong Kong-listed stocks in record numbers, highlighting a waning appetite for the market. According to Bloomberg-compiled data, mainland-listed exchange-traded funds (ETFs) focused on Hong Kong equities saw 25 billion yuan ($3.7 billion) in outflows last week, marking the largest weekly total on record. This sharp reversal comes after four consecutive months of Hong Kong stocks underperforming their onshore peers.

The trend is being driven by investors shifting their focus to mainland-listed semiconductors and other AI-linked shares, which are seen as more immediate beneficiaries of rapid growth. Goldman Sachs Group Inc. underscored this trend with a Wednesday downgrade of H shares, citing the "opportunity cost" of staying overweight in Hong Kong stocks. The firm's analysts, including Kinger Lau, cut their earnings-per-share growth forecast for the MSCI China Index for 2026 and 2027, attributing the downgrade to the outsized weight of nine large internet firms in the index's earnings profile.

Despite signs that Chinese internet firms may be reaching an inflection point in AI development, confidence has not been fully restored. Tencent's H-shares jumped 10% on Tuesday after a report that it's making progress on launching an AI agent in its flagship WeChat service. However, southbound investors saw the rally as a chance to exit, selling HK$2.1 billion ($268 million) worth of its shares. Even as the Hang Seng Tech Index climbed 4.7% on Tuesday, led by Tencent, an ETF from ChinaAMC that tracks the gauge saw record withdrawals of about 1 billion yuan that same day.

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In light of these developments, Goldman Sachs analysts recommend that investors consider approaching the Hong Kong market through targeted stock ideas for now. They suggest engaging the market via specific alpha themes and revisiting the beta case later this year when their expected profit growth trajectory takes hold.

Note: The table shows the record withdrawals from mainland-listed ETFs focused on Hong Kong equities last week.