By Sherry Qin


Underperforming Hong Kong tech stocks staged a comeback while a continued selloff in South Korean chip stocks dragged the benchmark Kospi into a bear market, signaling a shift into less-crowded artificial-intelligence trades.

Hong Kong's Hang Seng Index rose 3.0% on Wednesday, while the Nasdaq-like Hang Seng Tech Index jumped 5.0%. The gains came as South Korea's Kospi tumbled 5.3%, taking its losses to 23% from its recent peak and officially entering a bear market.

The two markets have traded their fortunes--the Kospi was Asia's best-performing market in the first half of the year, while the Hang Seng Index was a major laggard as investors pulled money out of heavyweight Chinese internet stocks listed in the city to fund the chip-led rally elsewhere.

Alibaba Group surged 12% on Wednesday, marking its best performance in almost a year, while Baidu was up 6.3% and Tencent Holdings gained 3.8%.

While investors aren't necessarily abandoning AI, they are moving away from the most crowded parts of the trade and looking for a different AI driver, Saxo Markets chief investment strategist Charu Chanana said.

Hong Kong seems to be an ideal choice, as internet stocks listed in the city have been under-owned and offer discounted valuations. Despite Wednesday's gains, shares of both Alibaba and Tencent are still down more than 20% each so far this year.

Nomura analyst Jialong Shi added that the market has especially started to recognize Alibaba's potential in AI cloud.

A news report that said Chinese AI company DeepSeek was considering making its own chip also boosted investors' sentiment.

"It helps revive the idea that China can still participate meaningfully in AI--not by trying to replicate the U.S. capex-heavy model, but through a more constrained, lower-cost and efficiency-led path across models, cloud, inference, chips and applications," Chanana added.

While the rally in Hong Kong looks like the first hint of portfolio reallocation, analysts caution that it is too early to call it a durable rotation. A more sustainable rebound in Hong Kong still hinges on the internet companies' earnings and global liquidity, they added.


Write to Sherry Qin at sherry.qin@wsj.com


(END) Dow Jones Newswires

07-08-26 0558ET