Hang Seng China Index Down Nearly 8% YTD as AI Funds Rotate to Taiwan and Korea Chip Stocks
Alina Collins
The MSCI China Index has fallen 18% from its October high, nearing bear-market territory; global AI capital is flooding into Taiwanese and Korean semiconductors while Hong Kong's old-economy-heavy benchmarks trail the world.
Why are Hong Kong China indices the worst performers globally?
The Hang Seng China Enterprises Index is down nearly 8% this year — dead last among more than 90 global equity benchmarks tracked by Bloomberg.
This means → the drag is structural, not cyclical: financials carry over 28% weight and consumer stocks nearly 23%, leaving AI exposure negligible.
In plain terms = global money is chasing AI chips, but Hong Kong's index is packed with banks and consumer brands — so the capital simply goes elsewhere.
What makes Taiwan and Korea the beneficiaries?
Semiconductor companies account for at least 50% of both Taiwan's and Korea's benchmark indices — a near-perfect fit for the AI capital wave.
Analysts have raised forward-earnings estimates for Korea's KOSPI by 246% and Taiwan's TAIEX by 58% over the past year; estimates for HSCEI members fell nearly 3% over the same period.
This reflects a market that is repricing AI supply chains upward and old-economy names downward — and the gap is still widening.
Why can't the internet giants hold the line?
Alibaba and Tencent both posted Q1 revenue below consensus, weighed down by heavy AI spending, fierce competition, and soft consumer demand.
This means → the very names that once defined "China tech" are now dragging on short-term profits because AI investment is burning cash faster than it generates returns.
Lotus Asset Management CIO Hao Hong put it bluntly: "These indices measure the wrong side of the economy."
Why did southbound flows suddenly reverse?
In May, mainland investors net sold roughly HK$3.6 billion (about US$460 million) of Hong Kong stocks via Stock Connect — the first monthly net outflow since June 2023.
Bloomberg Intelligence analyst Sharnie Wong cited three pressures: US rates staying "higher for longer," e-commerce earnings misses, and Beijing's crackdown on illegal cross-border brokerage operations.
Goldman Sachs downgraded H-shares this month, arguing that the opportunity cost of holding them keeps rising as better options appear elsewhere.
Valuations look cheap — is it time to buy the dip?
The HSCEI now trades at roughly 10× P/E (price-to-earnings — the share price divided by per-share profit), well below Taiwan's 20× and Japan's 17×.
Fidelity International fund manager Dale Nicholls sees property and consumer names as deeply lagging, saying "risk-reward has improved markedly."
In plain terms = cheap does not mean a rebound is coming — regulatory uncertainty and a fragile recovery still cap the upside, making the low valuation look more like a "discount for a reason" than a bargain.
Content is for reference only, not financial advice.