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The China Briefing

The A-H divide - cyclical or structural?

Explore whether the China A-H equity divide is cyclical or structural, with insights on AI-driven growth, market shifts and investment implications.

Please find below our latest thoughts on China:

  • One of the most striking features of China equities over the past year has been the sustained outperformance of Ashares, in stark contrast to the much weaker returns from China stocks listed in Hong Kong.
  • In quantitative terms, the MSCI China A Onshore Index has returned around 50% over the past 12 months, whereas the MSCI China Index has been broadly flat in USD terms.1
  • While periods of divergence between onshore and offshore markets are not uncommon, the magnitude of the current gap is notable and represents the widest dispersion in close to a decade.2
  • What is driving this? In our view, the answer lies primarily in a combination of shifting fundamentals and investor flows.
Chart 1: MSCI China A Onshore Index vs MSCI China Index – performance over 1 year (total return, USD)

Source: Allianz Global Investors, Bloomberg as of 22 June 2026.

  • Focusing first on fundamentals, the structure of the A-share market has changed materially over the past decade.
  • Historically, China A-shares were widely regarded as a proxy for the domestic economy. However, this characterisation has become less relevant as the market has evolved.
  • The weight of the technology sector has more than tripled during this period and now exceeds the combined weight of the financials, consumer and real estate sectors.3
  • And while the market does not yet have globally recognised “flagship” names comparable to TSMC or Samsung Electronics, China’s push for technological self-sufficiency has provided a sustained tailwind to its domestic ecosystem.
  • Notably, the China A tech universe is heavily skewed towards hardware and enabling technologies. This includes the semiconductor supply chain and the “picks and shovels” of the AI investment cycle.
  • As a result, these stocks have experienced – and continue to benefit from – a significant improvement in earnings expectations, supported by valuation re-ratings as investors increasingly factor in the scale of the long-term AI opportunity.
Chart 2: MSCI China A Onshore Index – change in sector weighting over time (%)

Source: IDS GmbH, Allianz Global Investors as of 31 May 2026.

  • Although the capital expenditure cycle of US hyperscalers has grabbed the market’s attention, China’s installed data centre capacity had already reached around 60% of US levels by mid-2025 and is accelerating further.4
  • And with the launch this month of the latest GLM-5.2 model by China company Z.ai, which almost matches the latest models from Anthropic and OpenAI,5Chinese AI is clearly now a front-line competitor to the US.
  • According to Goldman Sachs, China already accounts for roughly 10% of global AI-related market capitalisation and 16% of revenues.6  Much of this exposure sits within the China A market.
  • By contrast, the offshore China market – comprising primarily Hong Kong-listed stocks – has a very different composition.
  • The MSCI China index remains dominated by internet platforms and ecommerce companies, where earnings trends have been weaker and, in many cases, subject to downward revisions.
  • This reflects a combination of soft domestic consumption, intense competitive pressures, and rising capex linked to AI deployment.
  • In some cases, increased investment has come at the expense of shareholder returns, with capital previously allocated to buybacks being redirected towards capex.
  • Overall, we see internet platforms having moved from being a primary engine of China tech growth to a more mature, capital-intensive segment.
  • At the same time, the resurgence in IPO activity in Hong Kong has introduced an additional headwind. SpaceX may have dominated recent headlines, but there have been 78 IPOs year-to-date in Hong Kong focused mainly on techrelated areas.7  That’s more than one every two trading days.
  • These new listings have acted as a magnet for capital, with incumbent large-cap technology names being a funding source for the AI trade, further weighing on index-level performance.
  • So what are the investment implications? In our view, from a longer-term perspective, the current divergence between onshore and offshore China equities reflects more than cyclical dynamics. It signals a more structural shift in market composition and earnings drivers.
  • In particular, we see China’s national AI strategy creating a self-sustaining growth cycle independent of global tech cycles. This is supported by clear policy direction, rapid infrastructure build-out (compute, data centres, power), and accelerating adoption across industrial and consumer end markets.
  • From an asset allocation standpoint, investors may need to rethink traditional China exposure, which has historically been dominated by offshore listings, and consider increasing allocation to onshore markets to better capture the evolving growth drivers.

1 Source: Bloomberg as at 22 June 2026
2 Source: Bloomberg as at 22 June 2026
3 Source: IDS GmbH, Allianz Global Investors as at 31 May 2026
4 Source: Goldman Sachs as at 22 June 2026
5 Source: Gavekal as at 23 June 2026
6 Source: Goldman Sachs as at 10 March 2026
7 Source: Deloitte as at 19 June 2026

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