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Market commentary: the August tape
August brought the bulk of Q2 reporting, and the pattern was consistent: results were broadly fine, but guidance was poor.
Hong Kong gave back July’s gains, and in our reading the proximate cause was capex. The large platforms disclosed heavy AI spending, and the market immediately asked what the return on it looks like. China is running out of phase with the US here: global investors are now interrogating AI capex ROI, and that is precisely the moment Chinese companies have begun to spend. An already-cheap market took another leg down.
The extreme sentiment can be read off individual names. For instance, Kuaishou has fallen to roughly the level of its cash, with the value ascribed to Kling now close to nil — a revenue-generating business that the market has effectively decided is worth nothing. That was the mood of the Hong Kong market.
But there could be upside surprise worth watching. Open-source models keep taking global share from closed-source ones, and the large majority of those open-source models are Chinese. We cannot say when this turns, but if the narrative shifts to Chinese open-source models capturing a meaningful slice of the global token market, that is a genuine re-rating catalyst — and it would make today’s levels an entry point rather than a warning.
Given the macro, we would frame China less as an allocation to “the Chinese market” and more as an allocation to a handful of strong sectors within it — and at the index level, we do not see much comparative advantage at this time of the year. We will expand this in today’s monthly view below.
Aaron from our team will follow up later this week with a separate market commentary that goes considerably deeper on the August selloff — what it was and was not about, where the Q3 guidance pressure is concentrated, and the non-consensus case for where the upside surprise could come from.