As July begins, the performance of the A-share and Hong Kong stock markets has been markedly divergent. The Shanghai Composite Index has been seesawing around the 4,000-point level, while the Hong Kong market has experienced a sharp rebound driven by low valuations. However, the underlying investment logic for both markets remains anchored to the AI sector.
Concurrently, several major foreign financial institutions have recently issued bullish signals, collectively raising the allocation value of Chinese stocks. Standard Chartered has assigned an overweight rating to A-shares. Morgan Stanley has noted that overseas capital remains under-allocated, with gradual increases expected to follow. Goldman Sachs has directly advised shifting funds from Korean AI stocks to related domestic counterparts. UBS anticipates that multiple capital sources, including household deposit shifts, margin trading, and returning foreign capital, will continue to flow into the market. Leading foreign institutions unanimously identify the AI industry as the core investment theme for the second half of the year.
Contrasting Performances in A-Shares and Hong Kong
By the end of this week, one-third of July has passed. The first ten days of the month showcased a stark contrast between the closely related A-share and Hong Kong markets. One has been internally volatile and indecisive, while the other has been outwardly vigorous and impressively resilient, charting completely opposite trajectories.
The A-share market has been characterized by an intense tug-of-war around the 4,000-point mark, with the index fluctuating repeatedly. Following consecutive declines from July 6th to 8th, the Shanghai Composite Index retreated directly to around 3,970 points. It only managed to reclaim ground on July 9th, driven by a strong rally in the hard tech sector, before falling back again on July 10th.
The Hong Kong market, in contrast, has seen a powerful rebound after a prolonged period of pressure. The Hang Seng Index hovered around the 23,000-point level for several days at the start of the month before experiencing a highlight moment on July 8th. It surged 2.99% in a single day to reclaim the 24,000-point level. The Hang Seng Tech Index soared even higher, jumping 4.97% that day, marking its largest single-day gain in nearly three months.
Currently, the two markets exhibit a clear pattern of "internal stability and external rebound." A-shares are following a path of steady, structural recovery, with the tech sector taking turns leading after market consolidation. Hong Kong stocks, leveraging their low valuation advantage, have welcomed a wave of bargain-hunting and rebound, though their high-volatility nature remains unchanged. The underlying thematic focus for both markets continues to revolve around the AI industry.
Against this backdrop, several foreign institutions have recently voiced collective optimism for the "second half" of the Chinese stock market. Standard Chartered and Goldman Sachs have assigned overweight ratings to A-shares, while Morgan Stanley and UBS have expressed positive views on the future performance of Chinese stocks.
Foreign Institutions Maintain Overweight Stance on Chinese Equities
In a research report published on July 9th, Morgan Stanley stated that feedback from recent global roadshows indicates rising interest in Chinese stocks among international investors. The firm anticipates a trend of gradual capital reallocation over the coming months. The current market phase is seen as one for "progressive position-building" rather than "aggressive chasing." Global investors remain in a state of "extreme under-allocation" to Chinese assets, suggesting ample room for future increases in positioning.
In its H2 2026 China market outlook, Standard Chartered Bank noted that the Chinese market is approaching a window for momentum shift in the second half, with policy support providing a floor and limiting downside risk. Supported by strong exports and industrial production, overall growth momentum exceeded expectations in the first half. As the year progresses into the second half, growth momentum is expected to moderate, with boosting domestic demand becoming the primary challenge. However, coordinated policy efforts are expected to provide effective support for the recovery of domestic demand. The bank maintains its overweight rating on Chinese stocks, citing a core rationale of significant valuation discounts relative to major global markets, coupled with the overarching AI theme and the deepening trend of industrial upgrading.
Goldman Sachs, which has held Korean stocks for over a year, recently advised clients to shift funds from Korean artificial intelligence stocks to their Chinese counterparts.
UBS has also observed that multiple sources of capital are expected to flow into A-shares, including funds from household "deposit shifts," margin trading and securities lending, private equity, and ETFs. "Overseas investors will gradually return to the Chinese stock market," said Meng Lei, China Equity Strategist at UBS Securities.
Betting on China's AI Industrial Chain
While collectively optimistic about the performance of Chinese assets in the second half, which theme holds the highest certainty? Foreign institutions appear to be in remarkable agreement, all pointing towards the AI industrial chain.
Morgan Stanley stated that the commercialization of AI is accelerating. Tencent's Hunyuan 3 model has taken the lead in introducing free AI agent features. Alibaba's earnings preview suggests that both its cloud business and overall EBITDA are likely to exceed market consensus expectations. The trend of AI transitioning from "conceptual narrative" to "revenue realization" is accelerating.
Goldman Sachs noted that China's AI industry has formally entered its field of vision. The reason lies in an unprecedented combination of large-scale state support, surging global demand, and structural capital rotation, making Chinese AI one of the most compelling growth stories in the tech sector today.
The Chief Investment Office of UBS Global Wealth Management recently published an institutional view, maintaining a positive stance on the AI theme given that market demand remains robust.
The wealth management team at Standard Chartered also maintains a high level of focus on the AI industrial chain. Standard Chartered believes that current industrial policy will clearly favor the AI industry. The "15th Five-Year Plan" proposes strategic deployments for emerging industries, explicitly identifying artificial intelligence as the core engine for cultivating new quality productive forces.
Multiple Wall Street institutions concur that China's AI ecosystem, focused on supply chain localization and extreme cost-performance, is becoming a new oasis for global capital to re-anchor.
Foreign Institutions' Latest Company Visits in July
Examining the latest research visits by foreign institutions since July further validates the above viewpoints, as their attention has been largely concentrated on the AI industrial chain. Companies such as Suzhou Tfc Optical Communication Co.,Ltd. (Tianfu Tongxin), Chaoying Electronic, Shanghai Shenergy Company Limited (Hudian Gufen), Liandong Technology, Sieyuan Electric Co.,Ltd., and Boe Technology Group Co.,Ltd. (Jingdongfang A) have become the most frequently visited targets by foreign institutions recently.
For example, Suzhou Tfc Optical Communication Co.,Ltd., which has seen a high frequency of visits from foreign institutions, is a global leading provider of one-stop optical device solutions and has made forward-looking布局 in the CPO (Co-Packaged Optics) technology路线. As the CPO industry accelerates its transition from technical validation to large-scale commercial application by 2026, the company, as a core upstream supplier, is poised to benefit first from the elasticity brought by this incremental market.
During a visit on July 9th, foreign institutions inquired about the capacity preparation, automation level, and delivery volumes over the coming years for the company's CPO配套 products. The company stated that it provides FAU and ELS products for CPO solutions and has made relatively comprehensive preparations in terms of facilities, key equipment, personnel, and processes to meet customers' ongoing production increase demands. The company collaborates with external mature automation equipment suppliers and has an internal automation team, and will continue to advance automation development for key processes after product design finalization. CPO represents a long-term, in-depth industry solution, and AI applications will generate massive demand.
Another example is Chaoying Electronic, where foreign institutions focused on its order status during their visit. The company responded that the global supply and demand for memory chips is currently tight, with leading manufacturers continuing to expand production. The company has deep布局 in Chinese, Korean, and American memory clients with stable cooperative foundations, covering high-end PCB demand across all categories including SSDs, memory modules, and HDDs. Visibility for memory product orders this year is sufficient, with most premium capacity in the first half already locked in by long-term orders. Orders for配套 products like DDR5 and enterprise-grade SSDs are steadily increasing in volume. Relying on the concentrated release of new high-end capacity in Thailand in the second half, coupled with upgrades in memory product structure and steadily rising ASPs, the revenue contribution from the memory business will continue to increase, providing clear positive业绩 elasticity for full-year revenue and gross margin.
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