Hong Kong ETFs Attract Record Inflows as AI and Biotech Sectors Drive China Equity Demand

The surge in inflows into Hong Kong Stock ETFs linked to China's AI and biotech sectors underscores a profound shift in global capital flows. Investors are increasingly betting on the innovation-driven growth of these industries, which are reshaping China's economic landscape. This trend is not merely speculative but is underpinned by structural developments, including foreign capital liberalization, breakthroughs in proprietary technology, and strategic licensing deals.

Biotech: A Sector Reinvigorated by Global Partnerships

The Hong Kong biotech sector has emerged as a magnet for capital, with the Hang Seng Biotech Index constituents experiencing rising valuations. According to a report by KrAsia, 85% of these companies now have proprietary drug pipelines, a critical factor in attracting foreign investorsSouthbound Connect Net Inflow Hits New Daily Record, [https://chinalastnight.com/2025/08/15/southbound-connect-net-inflow-hits-new-daily-record-week-in-review/]^[3]. Foreign ownership in the sector has climbed to 42% over the past year, reflecting growing confidence in China's biotech ecosystemSouthbound Connect Net Inflow Hits New Daily Record, [https://chinalastnight.com/2025/08/15/southbound-connect-net-inflow-hits-new-daily-record-week-in-review/]^[3].

A key driver of this optimism is the sector's pivot toward business development (BD) licensing deals. These agreements, which allow Chinese firms to outsource clinical trials or co-develop drugs with global partners, have become a cornerstone of valuation management. For instance, large BD deals have enabled companies to de-risk their pipelines while generating upfront revenue, making them more attractive to institutional investorsSouthbound Connect Net Inflow Hits New Daily Record, [https://chinalastnight.com/2025/08/15/southbound-connect-net-inflow-hits-new-daily-record-week-in-review/]^[3]. This dynamic is evident in the performance of the ChinaAMC Hang Seng Biotech ETF (83069), which saw record inflows in July 2025ChinaAMC Hang Seng Biotech ETF (83069) News Flow, [https://www.moomoo.com/etfs/83069-HK/news]^[2].

AI: Leveraging Mainland Capital and Tech Giants

The AI sector has also drawn significant attention, particularly through Southbound Stock Connect—a channel allowing mainland investors to access Hong Kong-listed assets. Data from China Last Night reveals that Southbound Connect recorded a net inflow of $4.6 billion in August 2025, a record since its inception in 2016Southbound Connect Net Inflow Hits New Daily Record, [https://chinalastnight.com/2025/08/15/southbound-connect-net-inflow-hits-new-daily-record-week-in-review/]^[3]. This surge reflects the growing appetite for tech stocks like Alibaba and Tencent, which are central to the Hang Seng Technology ETF (EasyOne). The ETF itself saw a 0.88% increase in value during the quarter, driven by Alibaba's triple-digit year-on-year growth in AI-related product revenuesTrillions of funds are flowing south for acquisition, [https://news.futunn.com/en/post/61861738/trillions-of-funds-are-flowing-south-for-acquisition]^[1].

Alibaba's AI advancements, including large language models and cloud computing infrastructure, have positioned it as a global competitor. Investors are betting that these capabilities will translate into sustained revenue streams, particularly as Chinese tech firms gain traction in international markets.

Structural Tailwinds and Investor Sentiment

The convergence of AI and biotech innovation with policy-driven capital liberalization is creating a virtuous cycle. For biotech, the influx of foreign capital is accelerating R&D and global partnerships. For AI, the Southbound Connect inflows highlight the role of mainland China's trillions of dollars in savings seeking high-growth opportunities.

However, risks remain. Regulatory scrutiny in both sectors could dampen momentum, and valuations are already stretched in some cases. Yet, for now, the data suggests that investors view these sectors as essential to capturing China's next wave of growth.

Conclusion

The surging inflows into Hong Kong Stock ETFs linked to AI and biotech sectors are a testament to the evolving narrative around China's equity markets. While challenges persist, the combination of technological innovation, strategic partnerships, and policy tailwinds is creating a compelling case for long-term investment. As these sectors mature, they may redefine not only China's economic trajectory but also the global investment landscape.