Author: Zhao Ying
A battle between bulls and bears, epitomized by Michael Burry, is playing out in the Hong Kong stock market, with bullish sentiment steadily gathering.
Investor Michael Burry, who gained fame for accurately predicting the 2008 U.S. subprime mortgage crisis and served as the prototype for the film 'The Big Short,' recently stated publicly that now is an 'excellent time' to look for cheap stocks in the Hong Kong market. His bullish logic is based on the expectation that the global AI chip stock frenzy will cool down, leading capital to flow out of South Korea, Japan, and the semiconductor sector in search of undervalued opportunities.
Simultaneously, Wang Yajun, Head of Asia (ex-Japan) Equity Capital Markets at Goldman Sachs, also noted that the Hong Kong market has in fact entered the AI era, though this reality is not yet reflected in the major indices.
Both perspectives point to the same conclusion from different angles: there is a significant divergence between Hong Kong stocks' current weak performance and the underlying vitality within the market. This divergence itself may constitute an investment opportunity. For investors seeking value, the attractiveness of Hong Kong stocks is on the rise.
Burry Bullish on HK Stocks: A Value Play Post-AI Frenzy
Michael Burry, founder of Scion Asset Management, posted on X on July 17, stating, 'It is an excellent time to look for cheap stocks in Hong Kong. They should do well as the shine comes off Korea, Japan, and SOXX (a semiconductor ETF).'
Burry's statement has its market context. Global chip stocks have recently faced massive sell-offs, as doubts persist about whether AI companies can translate technological investments into actual profits. Coupled with high capital expenditure pressures, this has weighed on the semiconductor sector, which previously led global gains. In contrast, Hong Kong stocks' decline this year has made their valuations relatively more attractive.
Notably, Burry had already taken action earlier this month. According to Bloomberg, he increased his stake in Chinese e-commerce giant JD.com and opened new positions in DraftKings and Flutter, indicating his bullish stance on Hong Kong stocks and related Chinese tech stocks is not merely verbal.
Hong Kong Stocks Lag Far Behind Global Major Markets This Year
The relative weakness of Hong Kong stocks is clear from the data. The Hang Seng Index has fallen about 7% year-to-date, and the Hang Seng Tech Index has dropped even more deeply by 15.22%. Major drags include weak consumer spending and insufficient market confidence in the outlook for China's e-commerce industry.
This stands in stark contrast to the strong performance of other major global markets. According to Bloomberg data, South Korea's benchmark index has surged 62% year-to-date, benefiting from the robust performance of two major chip giants; Japan's Nikkei 225 has risen 26%; and the iShares SOXX ETF tracking the semiconductor sector has skyrocketed 76%.
It is precisely this significant underperformance that leads Burry to believe Hong Kong stocks present a 'bargain-hunting' condition—when global capital begins to reassess the sustainability of the AI frenzy, previously overlooked Hong Kong stocks may usher in a catch-up opportunity.
Goldman Sachs: Index Distortion, HK Market Already in AI Era
Goldman Sachs' perspective offers another dimension of interpretation—the sluggishness of Hong Kong stocks is, to some extent, a 'false impression' caused by the structural lag of the indices.
Wang Yajun, Goldman Sachs' Head of Asia (ex-Japan) Equity Capital Markets, bluntly stated at a recent media briefing, the Hong Kong market has entered the AI era, but the major stock indices have not yet been able to reflect this reality. This is the fundamental reason for the 'hot IPO market vs. weak index performance' dichotomy.
Wang pointed out that the hottest topic in the Hong Kong stock market this year is AI. The most actively traded, best performing, and largest fundraising stocks are all AI-related. However, adjustments to index components take a relatively long time, leading to a mismatch between the indices and the true market landscape. He expects total equity financing volume in the Hong Kong market this year could hit a record high, with full-year IPO proceeds potentially surpassing the historical peak of 2021. More AI companies are also expected to list in Hong Kong in the second half of the year.
Regarding fundamental judgment, Wang believes that supported by end-demand growth, capital expenditure by AI companies will continue, providing a basis for the long-term performance of related sectors.
Multiple Bullish Voices Converge, Divergence Remains
Burry is not alone. According to Bloomberg, Morgan Stanley recently also urged investors to buy Hong Kong stocks, citing optimism about corporate earnings prospects and the belief that the impact of restricted share sales will be relatively limited.
However, the bullish logic for Hong Kong stocks is not without challenges. The Hang Seng Index's decline this year reflects persistent market concerns about the pace of China's consumption recovery and the profitability of the e-commerce sector. These structural pressures are difficult to dissipate completely in the short term. The 'index-market mismatch' described by Goldman's Wang also means that ordinary investors, referencing only the indices, may both underestimate the structural opportunities within Hong Kong stocks and overlook the pressures still facing traditional heavyweights.
For investors, Burry's bottom-fishing signal and Goldman's AI narrative together sketch a picture of opportunity for Hong Kong stocks. Yet, the core challenge facing the market remains how to precisely position between overall index pressure and structural bright spots.
