Chinese Tech Stocks Whipsaw as Trump Fuels Decoupling Angst

(Bloomberg) — Chinese technology stocks rebounded as mainland traders came to the rescue, helping to trim losses driven by concern over US President Donald Trump’s move to limit investments between the world’s two largest economies.

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The Hang Seng Tech Index had slumped as much as 4.4%, pacing losses for Chinese equities in New York, as Trump spelled out more measures. By 1 p.m., the gauge had erased most of its decline as more than $1 billion worth of money poured into Hong Kong stocks from China.

Mainland investors are doubling down bets on China’s artificial intelligence as a priority for President Xi Jinping in the tech rivalry with the US. At the same time, a 5% retreat in American Depositary Receipts reflects growing concerns among global investors that Trump will tighten scrutiny on Chinese companies and their US listings.

“I think this is one of those times when it’s an obvious time to buy stocks without even having to do calculations,” said Zhuang Jiapeng, a fund manager at Shenzhen JM Capital Co. “This is not the time to let go of positions in China tech.”

Trump’s latest directive renewed geopolitical risks that financial markets had largely downplayed this year. Chinese internet megacaps were on a tear in recent weeks as DeepSeek gave investors confidence on the industry’s growth potential.

A bulk of that rally has been driven by mainland buyers. They purchased a net HK$8.9 billion ($1.14 billion) worth of Hong Kong stocks as of 11:15 a.m. on Tuesday, taking buying for the year to around HK$225 billion.

Tuesday’s dip likely gave mainland investors an opportunity to bolster positions as they wager on China’s ability to achieve tech self sufficiency. A report that Trump’s team was looking to add more restrictions on Chinese chipmakers added to that conviction, with shares of Semiconductor Manufacturing International Corp. erasing an earlier loss.

The contrasting fortunes of Alibaba’s securities in the US and Hong Kong is another illustration of the divide. In the US, its ADRs plunged 10%, while in Hong Kong, shares trimmed losses to less than 3%.

Alibaba’s ADRs traded at a 7.6% discount to its Hong Kong listing on Monday, the widest since May 2022, Bloomberg-compiled data shows. That compares with around 0.1% discount on a five-year average.

The declines were bigger in ADRs as Trump took aim at a common structure — known as “variable interest entity” — that Chinese firms use to list on American exchanges.

His memo also revived an issue related to the accounting practices of some foreign firms, saying the US government would ensure its rules are being adequately followed. Investors were reminded of the incidents in 2022, when US scrutiny over Chinese firms led to fears of forced delistings from American exchanges.

Separately, an analysis of filings by 14 US pension funds with investments in Chinese stocks showed that most of them have reduced their holdings since 2020. The ex-China theme has continued to gain traction for emerging-market investors. Last year saw 24 ex-China EM equity fund launches, a new annual record, and up from 19 in 2023, data compiled by Bloomberg show.

Despite the day’s swings, the Hang Seng Tech Index has gained about 29% for the year. Wall Street analysts have been saying the once-shunned sector is at a turning point, especially in the wake of President Xi Jinping’s high-profile meeting with Chinese tech business leaders.

“This is without doubt a buying opportunity for southbound investors like us, especially as the drop in ADRs does not impact the changed narrative around China tech,” said Zeng Wenkai, managing director at Shengqi Asset Management Co. “I would compare China’s AI rally to the mid-to late 2023 rally for Nvidia so it has much more of the journey to go.”

—With assistance from Abhishek Vishnoi and Winnie Hsu.

(Updates throughout)