Key Takeaways:
- Mainland-listed HK stock ETFs saw a record RMB25 billion weekly outflow.
- Goldman Sachs downgraded H-shares to market-weight, favoring A-shares.
- Hong Kong equities have underperformed mainland markets for four straight months.
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Chinese investors exit Hong Kong ETFs at record $3.7 billion weekly pace
Chinese investors pulled a record RMB25 billion ($3.7 billion) from mainland-listed Hong Kong stock ETFs last week, rotating into AI and semiconductor shares onshore.
"Hard Tech stocks have delivered strong top-line and profit growth but large-scaled Internet companies have continued to struggle to grow their bottom-line," said Kinger Lau, chief China equity strategist at Goldman Sachs.
The Hang Seng Index has gained about 1.5% year-to-date, trailing the CSI 300's more than 6% advance. The divergence is starker in technology: the Hang Seng Tech Index has fallen more than 5.5% in 2026, while the Nasdaq-like ChiNext has surged over 25%. AI hardware has driven 85% of the $3.8 trillion in Chinese AI equity market gains since the DeepSeek moment in January 2025, according to Goldman Sachs.
Goldman Sachs cut its rating on H-shares to market-weight from overweight, while staying overweight on A-shares — a way to play AI hardware. The bank raised its 12-month target on the CSI 300 to 5,500 from 5,300, offering nearly 12% upside. The repositioning risks widening the valuation discount for Hong Kong-listed stocks and could pressure sentiment for exchange operator HKEX and other Hong Kong financial intermediaries.
The record outflows mark a sharp reversal from last year's sustained inflows into Hong Kong equity ETFs. Hong Kong stocks have underperformed mainland markets for four consecutive months, with capital increasingly flowing into mainland-listed semiconductor and AI-related names.
China accounts for at least 10% of AI-related market capitalization worldwide, but Chinese AI stocks "are substantially under-owned by international investors," Lau said. Highly anticipated Chinese chip and humanoid robot IPOs are also coming to the mainland market instead of Hong Kong, while H-share AI model companies are planning A-share listings.
The rotation has also weighed on the yuan. USD/CNH traded near 7.25, reflecting capital flow dynamics as investors reposition toward onshore assets. The CSI 300's relative strength versus the HSI has become one of the widest gaps in recent years, showing the policy-driven divergence between Beijing's AI hardware push and Hong Kong's internet-heavy index composition. The China 10-year government bond yield held near 1.7%, with the yield gap versus US Treasuries narrowing as capital rotated into onshore risk assets.
Goldman still expects 11% potential gains over the next 12 months for the MSCI China index, but lowered it to market-weight in a regional context. The firm cited rising opportunity costs of maintaining an overweight stance on H-shares given the concentration of AI hardware beneficiaries on mainland exchanges.
This article is for informational purposes only and does not constitute investment advice.
