Hong Kong-listed Chinese stocks have slumped nearly 8% this year, making them among the world's worst performers as investors chase AI supply chain winners elsewhere. The MSCI China Index has dropped 18% from its October peak, edging toward bear market territory while Taiwan and South Korean indexes surge on semiconductor exposure.

Financial shares dominate the Hang Seng China Enterprises Index with over 28% weighting, while consumer names account for nearly 23%. This contrasts sharply with Taiwan and South Korea, where semiconductor firms make up at least half of index weightings. The disconnect reflects investor preference for AI beneficiaries over traditional Chinese internet and consumer companies.

Alibaba Group and Tencent Holdings missed revenue estimates amid heavy AI investments and fierce competition. Analysts trimmed HSCEI forward earnings by nearly 3% while boosting Korea's Kospi projections by 246% and Taiwan's Taiex by 58%. Mainland investors pulled HK$3.6 billion ($460 million) from Hong Kong shares in May, ending 11 months of buying.

Despite cheaper valuations at 10 times forward earnings versus 20 times in Taiwan, Chinese offshore stocks face persistent headwinds from regulatory concerns and fragile economic recovery. Goldman Sachs downgraded H-shares, citing more attractive opportunities elsewhere in the AI rally.