Amid AI tumult, more Chinese investors seek haven in undervalued Hang Seng Index

In July, mainland Chinese investors purchased more Hong Kong stocks than they sold, rotating into the undervalued market to avoid the tumult in AI-linked shares. Traders bought HK$62.9 billion worth of Hong Kong stocks through the cross-border Stock Connect program, extending June's HK$27.1 billion in acquisitions, according to Hong Kong exchange data.

Z.ai, Alibaba Group Holding, and NetEase were the top recipients of these inflows. The faltering global AI trade caused a slump in mainland yuan-denominated stocks, especially technology firms, leading investors to seek alternative assets. The Hang Seng Index is among the cheapest global equity benchmarks due to its low exposure to the AI frenzy, rising by 13% in July.

In contrast, the mainland's tech-heavy Star Market 50 Index plummeted 26%, its sharpest monthly decline. Analyst Melody Lai of SPDB International explained that despite global funds not significantly exiting equities, they were realigning across markets and sectors, finding refuge in Hong Kong's lower valuation and reassessment of internet platforms.

Although Hang Seng Index is valued at 12.2 times earnings, it lags behind other major markets this year, with limited AI hardware exposure and underperforming Chinese internet platforms due to weak consumer spending and an e-commerce price war.