Mainland Chinese investors are reinforcing their positions in Hong Kong’s stock market, investing large sums and narrowing the valuation gap with onshore counterparts.
Surge of Chinese Investments into Hong Kong
According to Bloomberg, mainland Chinese investors purchased a record amount of HK$29.6 billion worth of Hong Kong stocks in March, surpassing the previous high set in early 2021. Southbound trading through stock connect programs, which link mainland exchanges to Hong Kong’s markets, accounted for 46% of the average daily turnover in February, up from about one-third in February 2024. This has led to a reduction of the price gap between mainland shares and their Hong Kong counterparts from 42% to 34%, according to Industrial Securities Co.
AI Boom and Its Impact
Much of the buying frenzy comes as the artificial intelligence market becomes a significant focus in China. DeepSeek, a Chinese AI startup, developed an open-source AI model that became the most downloaded app in the US while reportedly using ‘downgraded chips’ specific to the Chinese market. However, founder Liang Wenfeng has rejected offers to commercialize DeepSeek's AI models due to concerns that a closer association with Beijing could hinder global adoption of the company's technology.
Economic Uncertainty and Market Reflections
Hong Kong stocks declined today, pulling the Hang Seng Index below 24,000 amid concerns over China's recent inflation data. The Hang Seng Index dropped 1.8%, while the Hang Seng Tech Index fell 3.1%. Investor sentiment improved after the National Bureau of Statistics reported a 0.7% decrease in the consumer price index in February. However, economists suggest that further inflows from the mainland may only temporarily support the Hong Kong market.
Amidst trade tensions between China and the US, investors are seeking ways to mitigate risks, with efforts focused on Hong Kong's stock market. Continued mainland capital inflow may temporarily bolster the local market.
