Wall Street Rotates Out of Crowded Korean and Japanese AI Trades, Into Chinese Stocks and Derivatives

Since mainland Chinese investors started buying Hong Kong-listed tech stocks through the southbound Stock Connect link, net buying has now stretched to a third straight month through August, according to data from Wind cited by the South China Morning Post. That streak is about to get a new entrant.

Starting Monday, September 8, mainland investors will be able to buy Baidu's Hong Kong shares directly through Stock Connect, according to StockTwits. Shanghai officials added the stock to the program after Baidu converted from a secondary Hong Kong listing to dual-primary status with Nasdaq on September 1. Baidu's Hong Kong shares jumped nearly 5% on the news, closing at HK$95.90, while its Nasdaq-listed shares rose about 3% to $98.44.

The Baidu move lands in the middle of a broader rotation. According to the SCMP, mainland investors poured HK$10.1 billion (roughly $1.29 billion) into MiniMax Group last month, the most of any Hong Kong-listed company available through the Connect scheme. Alibaba and Tencent followed with HK$7.86 billion and HK$6.72 billion respectively. The Hang Seng Tech Index dropped 4.3% in August, which the SCMP says gave mainland traders, who now account for roughly 30% of Hong Kong stock transactions, a dip-buying opportunity.

Foreign money is finding its own workaround

Outside the regulated Stock Connect system, foreign capital is chasing the same trade through offshore derivatives. Bloomberg reports rising client demand at Barclays and UBS for bullish options and swap contracts tied to China's CSI indexes, with strategists increasingly recommending mid- and small-cap plays.

A parallel market has grown on crypto-native perpetual futures platforms. According to reporting carried by KuCoin and Crypto Briefing, perpetual contracts tied to Unitree Robotics topped $105 million in trade volume within 24 hours of the robotics maker's IPO. CXMT, a Chinese memory chipmaker, saw offshore perpetual open interest hit roughly $66 million shortly after its July 2026 listing, building on about $19 million in daily volume even before the IPO. Platforms like Hyperliquid and tradeXYZ can list new perpetual markets within days of an IPO announcement, a speed advantage over traditional exchanges that require lengthy listing processes.

That speed comes with a catch. These synthetic instruments let foreign investors bet on Chinese AI stocks without a brokerage account with mainland market access, but the practice sits in what both Crypto Briefing and KuCoin describe as a legal gray zone that Chinese authorities, who have periodically cracked down on speculative trading, could tighten without warning.

Pimco's bet against Big Tech

The rotation isn't limited to retail traders and derivatives desks. Emmanuel Sharef, who runs Pimco's flagship 60/40 Balanced Income and Growth Fund, told Bloomberg News his roughly $19 billion fund, which has outperformed 97% of peers over the past three years, is underweight most of the Magnificent Seven.

"We're underweight the majority of hyperscalers at the moment, and we're underweight the majority of the Mag Seven just given their high valuations," Sharef said, according to Business Times. He's betting instead on Asian equipment suppliers further down the AI supply chain, Chinese financials for their lower volatility, materials stocks, and biotech.

Sharef's reasoning tracks the broader case for the shift: China's Star 50 Index, tracking innovation-focused firms on Shanghai's Star Market, returned roughly 29% year-to-date through mid-August 2026, comfortably beating the broader CSI 300, according to KuCoin. Meanwhile SK Hynix and TSMC, still dominant in global chips, now carry valuations that reflect years of aggressive bidding by Korean and Japanese AI investors.

The bull and bear case

Anyone bullish on this trade has a real argument: cheaper valuations, lower capex burdens for Chinese firms chasing profitability, and Beijing's industrial policy explicitly aimed at chip and AI self-sufficiency. Value Partners, one of Asia's largest fund managers, started rotating out of Taiwanese and Korean AI stocks back in August 2025 on exactly that logic.

But the risk case is just as real. Chinese equity markets don't offer the disclosure standards, legal recourse, or capital mobility that American and Korean markets do. Offshore perpetual futures exist specifically because foreign investors can't easily buy shares on the Shanghai or Shenzhen exchanges directly, and Beijing's capital controls remain a live obstacle, not a formality. A regulatory crackdown on speculative derivatives trading, which Chinese authorities have executed before, could hit those positions with little notice.

Baidu's Stock Connect inclusion takes effect Monday. Whether Beijing lets the offshore perpetual futures market keep growing unchecked, or moves to close the gray zone that's funneling billions into contracts it doesn't directly regulate, is the open question hanging over the rest of this trade.