Chinese stocks are about to get a big AI boost, Morgan Stanley predicts
According to a recent report by Morgan Stanley, significant investment is expected to flow into the underperforming Hang Seng Tech Index, largely due to the upcoming inclusion of two Chinese artificial intelligence (AI) companies. This forecast comes at a time when the index has experienced a decline of more than 11% in 2026, despite the growing excitement surrounding Chinese AI advancements.
Current State of the Hang Seng Tech Index
The Hang Seng Tech Index, which tracks the performance of technology companies listed in Hong Kong, has struggled this year. Only seven of the index’s constituents have posted gains in 2026, with notable performers including:
- Hua Hong Semiconductor
- Lenovo
- JD.com
- Midea
- Various electric vehicle manufacturers
Despite these few success stories, the overall trend has been downward, highlighting the challenges faced by tech stocks in the region.
Upcoming AI Companies Joining the Index
Two companies that have recently gone public in Hong Kong, Knowledge Atlas Technology and MiniMax, are expected to join the Hang Seng Tech Index on June 8. These companies have seen their stock prices soar since their initial public offerings (IPOs) in January 2026. Analysts at Morgan Stanley estimate that their inclusion could drive between $1.25 billion to $1.75 billion in passive inflows into the index.
Company Profiles
- Knowledge Atlas Technology: Known for its AI model Zhipu, which excels in coding capabilities.
- MiniMax: Recognized for its extensive range of AI functionalities, including text and audio generation.
Market Predictions and Price Targets
In their April 27 report, Morgan Stanley analysts raised their price targets for both companies significantly. The new targets are:
- Knowledge Atlas: 990 Hong Kong dollars (approximately $126.37), up from 560 HKD
- MiniMax: 1,100 HKD, increased from 990 HKD
This bullish outlook is based on the analysts’ belief that each of these frontier Chinese AI models can achieve at least $1 billion in revenue this year, with expectations of more than doubling that figure in the following year.
Competitive Landscape and Cost Dynamics
Knowledge Atlas and MiniMax are trailblazers in the Chinese AI sector, being the first major companies focused on AI models to go public. Other competitors, such as Moonshot, which operates the Kimi AI model, and StepFun, remain privately held. The competitive landscape is evolving, with the cost of accessing Chinese AI models increasing significantly. In the first quarter of 2026, the cost of using Chinese AI models rose to at least 17% of what U.S. AI models charge, a notable increase from just 5% a year earlier.
Impact on the Hong Kong Equity Market
The analysts at Morgan Stanley predict that AI and large language model companies will become increasingly influential in driving the Hong Kong equity markets. They expect this trend to reshape index composition, performance, liquidity, and fund flows. The report highlights strong regulatory support for the tech sector, noting that technology companies accounted for 40% of Hong Kong’s IPO fundraising year-to-date and 43% of the current IPO pipeline. This reinforces the notion that AI will be a lasting force in Hong Kong’s equity market.
Challenges for Major Players
Despite the positive outlook for AI companies, larger stocks in the Hang Seng Tech Index, such as Tencent and Alibaba, have faced significant challenges. Both companies have seen their stock prices decline by double digits in 2026. Notably, Alibaba has been identified by Morgan Stanley analysts as a top pick among Chinese internet stocks due to its potential as an AI play across various sectors, including cloud computing and AI models.
Conclusion
The anticipated inclusion of Knowledge Atlas Technology and MiniMax in the Hang Seng Tech Index is set to provide a significant boost to Chinese stocks, particularly in the AI sector. As these companies continue to grow and evolve, their impact on the market is expected to be profound, reshaping the landscape of technology investments in Hong Kong.
Note: The information presented in this article is based on the latest available data and forecasts as of May 2026 and is subject to change based on market conditions.
