Hong Kong stocks and internet giants have surged due to China’s apparent AI breakthrough and rapprochement with tech giants, but the buyers behind it are still cautious, and brokers say international investors are showing apprehension before making large bets while markets fluctuate wildly.
Hong Kong’s Hang Seng has recovered from a string of weak years to challenge Germany’s DAX as the world’s best-performing market so far this year, with gains of 13% and 13.1%, respectively, while the S&P500 has increased by 4%. As President Xi Jinping met with leading tech executives in Beijing, Hong Kong tech shares reached three-year highs, up 31% since mid-January.
“The frenzied speculation and level of optimism behind the rally were neatly highlighted by the prices fluctuating as investors searched through photos and videos of the meeting for the faces of top executives. Trading also demonstrated the maxim that the biggest reward goes to the first investors in China, particularly if they can exit the market as soon as the euphoria wears off,” reported Reuters on the phenomenon.
“As with moves in the past two years or so in HK/China, it’s very retail driven (and volatile) – a trading market. Hedge funds or the more Hong Kong-China centric funds are well aware of the dangers of not rushing in from the onset,” Wong Kok Hoong, head of equity sales trading at Maybank said.
Broker data appears to indicate that’s exactly who’s purchasing. According to CICC, cumulative southbound flows, or purchases by mainland investors, have totalled HKUSD 26.6 billion (USD 3.4 billion) since the early February Lunar New Year holiday. This amount is comparable to a record-breaking September rush.
“In contrast to covering short bets, buyers primarily in Asia were taking long positions, bringing net exposures close to their highest level in a year,” stated a Morgan Stanley note on hedge fund positioning.
“Hot money is driving the market for the past two weeks,” Steven Leung, who works with institutional clients at the Hong Kong brokerage UOB KayHian, said.
“Hot money” refers to funds that are owned by investors who are looking for quick profits.
As stated before, Hong Kong tech shares reached three-year highs, up 31% since mid-January. The rally’s triggers include the sudden popularity of Chinese AI startup DeepSeek, which has developed an AI model far cheaper than American rivals. The disruption has also been touted as a “relief” for the Chinese tech sector, which has been hit with sanctions from Washington on fronts like semiconductors.
Shares in Alibaba also headlined the rally. While the venture has entered into an AI partnership with Apple, its founder Jack Ma, who has kept a low profile over years of crackdowns on China’s tech giants, appeared at the symposium with Xi Jinping.
The stock touched a three-year high on February 17 and is up nearly 50% for 2025 so far. The volume of Alibaba shares traded in Hong Kong in February 2025 was the largest since listing in late 2019.
“(Jack Ma’s) presence would be hugely symbolic of how the government’s stance towards the tech sector has changed. If there’s one person associated with the tech crackdown, it’s Jack Ma…it’s more or less a total reversal of the policy stance from a few years ago, when officials vowed to curb the ‘disorderly’ expansion of capital,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong.
Morgan Stanley recently said in a note that global investors were starting to reassess China’s investability, after a long period of limited attention, though it added that as of late January, they had been underweight. On February 17, Goldman Sachs analysts raised forecasts for the MSCI China index to 85 from 75 and some investors see a sustainable rally.