Hong Kong seeks tech exposure to take on Nasdaq amid Beijing’s rising AI dominance

Hong Kong is ramping up its efforts to bolster the technology sector in its stock market, aiming to compete with the Nasdaq and capitalize on China's burgeoning AI industry. Following the debut of Zhongji Innolight, numerous Chinese hardware technology firms involved in optical transceivers for AI data centers are set to launch stock offerings in Hong Kong. This shift in the market landscape, which has previously been dominated by Chinese internet platforms, could potentially alter the dynamics of future listings.

In an effort to enhance the Hang Seng Tech Index, the Hang Seng Indexes Company has proposed a comprehensive review to include more growth-oriented constituents and adjust its inclusion criteria to account for revenue growth. This adjustment could also extend to the broader Hang Seng Index in the upcoming quarterly review, as suggested by China International Capital Corporation (CICC). With a renewed focus on technology, the Hong Kong market seeks to bridge the gap in AI exposure that has left it behind this year.

The city's strategic advantage lies in its access to China's leading AI open-source models and humanoid robotics, providing fresh listing opportunities. Despite limited AI exposure, Hong Kong stocks have managed to avoid the broader tech sell-off, with the Hang Seng Index rising 13% this year. However, the revival of AI investments, driven by lessening concerns about monetary tightening, could once again put the city's market at risk.

While the Hang Seng Index has remained relatively flat this year, the Hang Seng Tech Index has significantly underperformed, losing over 10% compared to the Nasdaq-100's 17% gain during the same period.

Prominent Chinese companies, such as Suzhou TFC Optical Communication, have already filed for a Hong Kong stock listing, while Eoptolink Technology has received shareholder approval to sell shares in the city. Another leader, Zhongji Innolight, raised US$6.8 billion in the city's largest stock sale of the year when it completed its listing in July.

As for the Hang Seng Tech Index, it is poised for another transformation, with the possibility of increasing the number of constituents from 30 to 50. The index compiler is also considering adding companies with the most significant revenue growth to the benchmark index in its upcoming quarterly review.