Chinese stocks slumped on Friday with investors citing a lack of fresh catalysts after a blistering rally. The coming week may offer investors some fresh cues as a spate of companies are due to report their results.

The price gap between mainland China stocks and their counterparts listed in Hong Kong is poised to reach a more than four-year low, as optimism in AI drives investors to the city’s market.

In the longer term, the premium “could be lower than in the past due to increasing southbound ownership in Hong Kong, which is now at a similar level compared to foreign active funds’ ownership,” UBS wrote in a note.

TSMC risks giving up its lead over Tencent Holdings as Asia’s biggest company by market value, with investors focused on the latter’s AI plans. The gaming giant has recouped all the losses it registered from 2021 to 2023.

Global investors are deserting India's stock market, selling shares at a record pace to buy Chinese stocks instead, in a dramatic reversal of fortunes for the Asian giants over the last six months.

While asset managers such as Morgan Stanley and Fidelity International remain overweight on India, they have trimmed exposure over the last few months to add to bets in China.

Slowing corporate earnings are seen growing in the current financial year at the slowest pace in four. Morgan Stanley reckons that foreign money could stop leaving Indian stocks only in the second half of 2025.

Dry powder

China’s top economic officials said earlier this month they have carved out plenty of room to act in the face of uncertainty, after their country set an ambitious growth target for 2025 despite higher US tariffs.

The government will “soon” publish its action plan to boost consumption, and a state fund will be set up to drive almost 1 trillion yuan of investments into innovative startups, the NFRA chairman said.

They believe that childcare is one of the few areas where cash handouts to consumers will get spent rather than saved, as demographic challenges loom after population has shrunk for three years in a row.

The PBOC is studying the option of reducing the rates it charges for structural lending tools, though the governor Pan said that monetary stance has already been relatively loose in the past few years.

However, the combined expenditure in two major budgets slightly fell short of the annual plan over the past six years, according to Bloomberg calculations, which could have resulted from a lack of decent investment projects.

Authorities at the legislative gathering provided details on measures to get local officials to spend money, particularly in the ailing property sector. An improved market could ease the squeeze on family budgets.

That is equally crucial to beefing up public-sector income, because land sales account for nearly 80% of local revenue under the government fund budget, the second-largest of China’s four fiscal books.

Deregulation

Hong Kong’s stock exchange is discussing options to lower the threshold for investors to buy some of the city’s most expensive stocks to stoke trading, according to people familiar with the matter.

Currently the unit is set by each company and can range from 100 shares to thousands, while Mainland China market typically trades with a standardised unit of 100 shares and in some cases as low as a single share.

While partial board lots are available to investors in Hong Kong, they are costlier than whole units because of infrastructure issues. Officials seek to fix it to boost liquidity among the wider public.

Trading in the bourse has boomed since late last year after China pledged broad stimulus measures, with volume rising to an average of about HK$200 billion a day in Q1, up from HK$91.7 billion a year earlier.

On top of that, a separate report said market regulator was planning to cap margin loans used to buy shares at IPO, in an effort to clamp down on heated demand from retail investors.

Under the plan, they would be required to put down at least a 10% deposit when drawing a margin loan to subscribe for IPOs. The move is a response to a recent IPO market frenzy, partly driven by easy brokers’ loans.

The exchange has just closed a market consultation to limit clawbacks, hoping to keep more shares for institutional investor as the FINI system ushered in multiple mega-hit IPOs which were hugely oversubscribed.

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