Hong Kong stocks rose for a third day on Friday, sending the benchmark gauge to its longest winning streak in three weeks, after softer US inflation data bolstered the case for monetary easing and allayed concerns about frothy valuations of global equities. The Hang Seng Index advanced 0.8 per cent to 25,690.53 at the close, paring the weekly loss to 1.1 per cent. The Hang Seng Tech Index gained 1.1 per cent. On the mainland, the CSI 300 Index climbed 0.3 per cent and the Shanghai Composite Index added 0. ...

Hong Kong stocks traded sideways on Thursday, with technology stocks retreating on growing anxiety that a global boom in artificial intelligence could turn into a bubble. The Hang Seng Index edged up 0.1 per cent to 25,498.13 at the close. The Hang Seng Tech Index dropped 0.7 per cent. On the mainland, the CSI 300 Index slid 0.6 per cent and the Shanghai Composite Index added 0.2 per cent. Xiaomi, the Chinese smartphone and electric vehicle maker, tumbled 2.5 per cent to HK$40.20 and Pop Mart Internatio ...

Core Insights - Chinese AI chip companies are gaining significant investor interest as they aim to develop a self-sufficient semiconductor ecosystem to compete with Nvidia amid U.S. export restrictions [2][3][5] Group 1: Market Performance - MetaX Integrated Circuits saw a 700% increase in its stock price during its Shanghai market debut, while Moore Threads surged over 400% on its first trading day just two weeks prior [1][2] - MetaX raised nearly $600 million in its initial public offering, which will be used to accelerate research and development for new AI training and inference GPU chips [17] Group 2: Competitive Landscape - Major Chinese tech companies like Huawei, Alibaba, and Baidu are investing heavily in AI chip development, although none have yet produced chips that match Nvidia's most advanced offerings [5][6] - Huawei is developing the Ascend series of chips, with the next-generation model, the 950, set to launch in 2026, and is focusing on building high-performance clusters to compete with Nvidia [6][7] - Baidu is a majority shareholder in chip designer Kunlunxin and has a five-year roadmap for its AI chips, aiming to position itself as a full-stack provider [9][10][11] - Alibaba has been developing AI chips since the late 2010s and is focusing on inference rather than training, with reports of improved performance contributing to revenue growth in its cloud division [13][14] Group 3: Emerging Players - Cambricon reported a revenue increase of over 4,000% year-on-year to 2.88 billion Chinese yuan ($402.7 million) in the first half of 2025, positioning itself as a strong contender in China's AI accelerator market [15][16] - Biren Technology, founded in 2019, is also designing high-performance GPUs and has received approval for an IPO [19]

12 December 2025 | 9:56PM HKT Portfolio Strategy Research CHINA WEEKLY KICKSTART Markets flat; Central Economic Work Conference readout suggests modestly pro-growth policy stance; CPI inflation rose and export growth rebounded in November MXCN/CSI300 was flat (-0.7%/-0.1%) this week. The Central Economic Work Conference was held on Dec 10-11 and the readout appears modestly more pro-growth than the December Politburo meeting on Dec 8. The FOMC lowered the target range for the fed funds rate by 25bp to 3.50- ...

Macro factors currently driving the economy, such as inflation, interest rates, labor markets, supply chain issues and so forth have a varied impact on players in the extremely diverse Internet – Services industry, although a stronger economy is generally positive. Therefore, the ongoing tariff war and its impact on inflation; declining consumer confidence mainly related to tariffs, inflation and jobs; and inflation-driven rising producer price index (PPI) may be considered negative for the industry. Our pi ...

Summary of Key Points from the Conference Call on China AI Development Industry Overview - The focus is on the **China AI industry**, particularly developments in **Large Language Models (LLMs)**, computing infrastructure, and enterprise/consumer adoption of AI technologies [1][2][3]. Core Insights 1. **Investment Trends**: There is increasing investor interest in China's AI development, with discussions centered around AI investment, application, and domestic substitution, particularly in chips [1]. 2. **LLM Capability**: By 2026, it is expected that China's domestic LLM capabilities will rapidly iterate and catch up with US counterparts [1]. 3. **Monetization Paths**: China and the US are following similar monetization paths for AI, with cloud services and advertising being the most visible areas for growth [1]. 4. **Infrastructure Development**: Continued localization of computing power is anticipated, with improvements in chip performance and supernodes taking on more inference and training workloads [1][2]. Financial Metrics - **CAPEX Comparison**: In Q325, major Chinese cloud providers' CAPEX was 10% of their revenue and 50% of their operating cash flow, compared to 27% and 71% for US hyperscalers. The estimated combined CAPEX of China's internet leaders is around **Rmb400 billion** in 2025, about one-tenth of US peers, while achieving comparable LLM performance [2][24]. AI Disruption Risk 1. **Gradual Disruption**: The pace of AI disruption in China is expected to be gradual due to a fragmented chatbot landscape and high entry barriers in vertical industries [3][27]. 2. **Chatbot Landscape**: Unlike the US, where ChatGPT has a dominant position, China's chatbot apps like Doubao and DeepSeek have not yet consolidated, leading to a more balanced bargaining power between AI apps and vertical platforms [27]. Preferred Stocks - **Investment Recommendations**: The report highlights **Tencent** and **Alibaba** as comprehensive AI leaders, with **Baidu** showing potential upside. Other recommended stocks include **GDS/VNET** in the IDC space and **Meitu/Kuaishou** for AI applications [4]. Strategic Updates from Key Players 1. **Alibaba**: Increasing focus on consumer-facing AI products, with the Qwen app expected to leverage advanced AI models and integrate deeper within Alibaba's ecosystem [12][13]. 2. **ByteDance**: Doubao is expected to broaden its use cases and integrate with broader ecosystems, enhancing its capabilities as a system-level AI assistant [14][15]. Future Catalysts - Anticipated catalysts for the AI sector include continued model iteration, strategic updates from key companies, and capital market updates from domestic chip companies and AI labs [10][11]. Conclusion - The outlook for China's AI industry remains positive, with expectations for accelerated adoption and monetization by 2026. The focus on prudent CAPEX, stable IDC utilization, and gradual disruption risk suggests a robust environment for investment opportunities in the sector [2][3][4].

Economic Indicators - The Federal Reserve is expected to cut the Fed funds rate by 25 basis points to a range of 3.50% to 3.75% due to concerns over the jobs market and inflation [1] - The core PCE price index rose +0.2% month-over-month and +2.8% year-over-year in September, slightly below expectations [3] - U.S. personal spending increased by +0.3% month-over-month, while personal income grew by +0.4% month-over-month, exceeding expectations [3] - The German October Industrial Production rose +1.8% month-over-month, significantly above expectations of +0.2% [10] Market Performance - Wall Street's major equity averages ended positively, with Ulta Beauty surging over +12% after strong Q3 results and raised guidance [4] - Micron Technology and GlobalFoundries saw gains of over +4% and +3% respectively, while Warner Bros. Discovery climbed more than +6% following Netflix's acquisition announcement [4] - In pre-market trading, Tesla fell over -1% after a downgrade, while Confluent soared more than +28% amid acquisition talks [16] Corporate Earnings - Several prominent companies, including Broadcom, Oracle, and Adobe, are set to release quarterly results this week [7] - Carvana is expected to be added to the S&P 500 index on December 22nd, leading to an over +8% rise in pre-market trading [17] International Developments - China's November Trade Balance stood at $111.68 billion, exceeding expectations of $105 billion, with exports rising +5.9% year-over-year [12] - Japan's economy contracted more than initially estimated in Q3, with a revised annualized GDP of -2.3% quarter-over-quarter [14]

Core Viewpoint - Baidu is considering a spin-off and Hong Kong listing of its semiconductor arm, Kunlunxin, amid increasing investor interest in China's chip sector [1][5]. Company Developments - Baidu confirmed that Kunlunxin is in the process of preparing for an initial public offering (IPO) in Hong Kong, expected to be filed no earlier than Q1 of next year [1]. - The company cautioned that there is "no assurance" that the proposed spin-off and listing will proceed [2]. - Shares of Baidu rose 3.2% to HK$125.60, following a 5% gain the previous Friday, as investors anticipate that a potential listing could unlock value in its AI chip business [3]. - Kunlunxin recently completed a fundraising round, increasing its valuation to approximately 21 billion yuan (US$2.97 billion) [3]. Industry Context - The move follows the successful debut of Moore Threads Technology, which saw its shares surge fivefold, reflecting renewed optimism in China's semiconductor self-reliance amid ongoing tensions with the United States [4]. - Baidu's chip ambitions align with Beijing's goal of reducing reliance on US suppliers like Nvidia and enhancing domestic capabilities in the global AI race [6]. - Kunlunxin originated as an internal Baidu project focused on intelligent chips, launching its first product, the XPU, in 2017 [6]. - The Kunlun AI chip, introduced in 2018, was described by Baidu's CEO as China's "first cloud-to-edge" AI chip, designed for handling AI workloads across various computing environments [7]. - Kunlunxin was spun off as an independent company in April 2021, with its initial valuation at 13 billion yuan, and Baidu currently holds a 59.45% stake, down from 70% in 2021 [8].

Economic Indicators - U.S. Personal Spending and Personal Income for September are expected to rise by +0.3% month-over-month, down from +0.6% and +0.4% in August respectively [1] - The core PCE price index for September is forecasted to remain at +0.2% month-over-month and +2.9% year-over-year, unchanged from August [2] - Initial jobless claims fell by -27K to a three-year low of 191K, compared to the expected 219K [3] Stock Market Performance - Wall Street's major indices closed mixed, with notable declines in chip stocks like Intel, which fell over -7%, and Snowflake, which dropped over -11% due to disappointing Q4 guidance [4] - Dollar General surged over +14% after reporting better-than-expected Q3 results and raising its full-year guidance [4] - December S&P 500 E-Mini futures are trending up +0.16%, approaching a new all-time high [5] Consumer and Credit Data - The U.S. Consumer Credit is expected to be $11.8 billion in October, down from $13.1 billion previously [6] - The University of Michigan's Consumer Sentiment Index is anticipated to rise to 52.0 in December from 51.0 in November [5] European Market Insights - The Euro Stoxx 50 Index increased by +0.26%, supported by optimism over a potential Fed rate cut [8] - Germany's factory orders rose by +1.5% month-over-month in October, exceeding expectations of +0.3% [9] - Eurozone GDP grew by +0.3% quarter-over-quarter and +1.4% year-over-year in Q3, matching expectations [9] Asian Market Developments - China's Shanghai Composite Index closed up +0.70%, driven by optimism in the chip sector and a rally in insurance stocks [10] - Japan's Nikkei 225 Index fell due to disappointing household spending data, which dropped -3.5% month-over-month [11][12] - Japan's leading economic indicators index rose to a 17-month high, indicating a positive outlook despite current challenges [11] Corporate News - Rubrik's stock jumped over +19% in pre-market trading after strong Q3 results and above-consensus Q4 guidance [13] - Ulta Beauty climbed more than +5% following stronger-than-expected Q3 results and an increase in full-year guidance [14] - Hewlett Packard Enterprise's stock fell over -9% after reporting weaker-than-expected FQ4 revenue [14]

Summary of China AI Semiconductor Conference Call Industry Overview - The focus is on the **China AI semiconductor industry**, particularly the advancements in AI chip supply and demand dynamics leading up to 2026 [1][2][3]. Key Insights - **Strong Performance**: China's AI-related stocks have shown robust performance in 2025, driven by innovations from **DeepSeek** and local AI chip advancements [1]. - **Consolidation Phase**: The market has entered a consolidation phase since October 2025, raising concerns about the sustainability of growth in the AI sector [1]. - **Future Projections**: The supply chain upside is expected to take center stage in 2026, with significant growth anticipated in AI capital expenditures (capex) [2][12]. Financial Projections - **AI Capex Growth**: AI capex is projected to grow at a **25% CAGR** from 2025 to 2028, reaching **USD 172 billion** by 2028 [2][29]. - **Total Capex for CSPs**: Total capex for China’s Cloud Service Providers (CSPs) and telecommunications is expected to grow at **13% CAGR**, reaching **USD 267 billion** by 2028 [2][27]. - **Healthy Spending**: Total capex for listed players is only **40-60%** of their free cash flow, indicating healthy spending levels [2]. Supply Chain Dynamics - **Bottlenecks**: The primary bottleneck currently is the constrained local advanced logic production capacity, which limits AI chip output [3]. - **Capacity Expansion**: Advanced logic capacity is expected to accelerate starting in 2026/27, leading to a significant increase in local AI chip sales by 2027/28 [3][55]. - **Market Share Shift**: Local players are projected to capture over **90%** of the market share by 2028, especially as NVIDIA's sales in China are not expected to resume due to ongoing investigations [3]. Company-Specific Insights - **Cambricon**: Upgraded to **Outperform** with a price target of **CNY 2,000**, reflecting strong growth potential due to increased AI chip demand [7][10]. - **Hygon**: Rated **Outperform** with a price target of **CNY 280**, based on projected earnings growth [7]. - **Hua Hong**: Rated **Outperform** with price targets of **HKD 100** for H-shares and **CNY 140** for A-shares [8]. - **SMIC**: Rated **Outperform** with price targets of **HKD 100** for H-shares and **CNY 150** for A-shares, driven by advanced logic capacity expansion [9]. - **NAURA and Piotech**: Both rated **Outperform** with price targets of **CNY 600** and **CNY 375**, respectively [10]. Investment Implications - **Sector Ranking**: The investment ranking is **AI chip > Semicap > Foundry**, with a strong preference for AI chip vendors like Cambricon due to growth momentum [15]. - **Defensive Stocks**: Semicap stocks are viewed as more defensive with reasonable valuations, benefiting from the shift in memory demand towards local suppliers [4]. Risks and Challenges - **NVIDIA Resumption**: The biggest risk is if NVIDIA resumes sales in China, which could undermine local vendors [14]. - **Market Sensitivity**: Chinese AI stocks may be affected by broader market trends, including potential crashes in US AI stocks [14]. - **Supply Chain Self-Sufficiency**: The advanced logic supply chain is not fully self-sufficient, which could delay capacity expansion in extreme scenarios [14]. Conclusion - The China AI semiconductor industry is poised for significant growth, driven by local innovations and increasing demand for AI chips. However, potential risks from global competitors and market dynamics must be closely monitored.