Chinese AI Rally Enters Second Phase as Chip Exports Jump 60%

Chinese AI stocks have entered a second phase of their rally in which earnings quality matters more than narrative, with semiconductor exports still growing 50-60 percent year over year, economist Hao Hong said.

"The market is entering a differentiation phase: high-quality names will perform well, while some that only tell stories will continue to underperform the sector," Hong said in an interview.

After a two-month pullback, many Chinese tech names have fallen to more realistic valuations, Hong said. Some AI-linked companies reported profit growth of as much as 1,000 percent last quarter, but investors question whether such gains are sustainable because capacity still depends on overseas orders. Chinese semiconductor makers now dominate the mid- and low-end segment, with exports rising 50-60 percent year over year. New models such as DeepSeek's Pro and Kimi 3 match U.S. peers in capability at sharply lower cost, Hong noted.

The shift matters for fund allocation across Chinese tech. The Hang Seng Index has climbed more than 15 percent from its bottom over the past two weeks, with some of the new money rotating from South Korea into Hong Kong-listed Chinese AI names, Hong said. Tencent Holdings (騰訊控股, 0700.HK) and Alibaba Group (阿里巴巴, 9988.HK) remain in transition from internet platforms to AI cloud companies, and recent share gains are mostly technical rebounds, he said.

Semiconductor Exports Grow 50-60% as Makers Dominate Mid-Low End

Chinese semiconductor companies now lead the mid- and low-end market, and export data shows the segment still expanding at a very high double-digit pace, Hong said. The strength supports many chip names, though valuation and the sustainability of earnings growth will separate winners from laggards, he said. Some companies that posted profit growth of up to 1,000 percent last quarter face skepticism because their capacity relies on overseas orders to stay full. The export momentum also feeds a broader trade picture in which China's share of global exports sits at a historic high, with manufacturers holding an absolute cost advantage across nearly every industry, Hong said.

Korean Capital Rotates Into Hong Kong as HSI Rises 15%

The Hang Seng Index has climbed more than 15 percent from its bottom in the past two weeks, and Hong attributed part of the move to new money rotating from South Korea, where traders are known for high risk appetite, into Hong Kong-listed Chinese AI names. "Hong Kong welcomes this new type of trader with both capital and risk appetite," he said. The inflows have not yet changed the structure of the Hong Kong market, he added. Hong also warned that rising trade friction with Europe, where academics and policymakers increasingly argue Chinese exports are displacing European producers, could weigh on the export-driven growth story.

For investors, the second phase rewards companies that convert AI spending into earnings. Tencent's Yuanbao (腾讯元宝) has become a popular AI tool in China, and Alibaba Cloud has shown strong profit growth, but AI still contributes a relatively small share of group revenue, Hong said. The question for the next leg of the rally is which names can turn model development and token consumption into durable profit, he said.

This article is for informational purposes only and does not constitute investment advice.