Morgan Stanley predicts major capital event for Hong Kong equity markets

Morgan Stanley is predicting a significant capital event for Hong Kong's equity markets this summer, driven by a scheduled index rebalancing.

The bank forecasts that the inclusion of two prominent Chinese generative AI companies, Knowledge Atlas Technology—the holding entity for Zhipu AI—and MiniMax, into the Hang Seng Tech Index on June 8, 2026, will trigger substantial activity.

This adjustment is expected to generate between $1.25 billion and $1.75 billion in passive investment inflows as funds tracking the index adjust their holdings to match new weightings.

Passive funds are required to hold stocks in proportion to their index weight, meaning these new additions must be purchased regardless of current valuation sentiment.

"With two high-profile AI firms entering simultaneously," analysts expect the resulting mechanical buying to be significant.

Consequently, the bank has raised its price target for MiniMax to 1,100 HKD and Knowledge Atlas Technology to 990 HKD, representing a 77% upward revision for the latter.

This optimism is bolstered by predictions that China's top frontier AI models will generate revenues exceeding one billion dollars by 2026.

Current data indicates the pricing differential between Chinese and American AI models is narrowing, with Chinese services now costing roughly 17% of their US counterparts' rates.

Beyond the index changes, Alibaba remains a key recommendation for the bank. Identified as a global AI leader, Alibaba's strength lies in its vertical integration, spanning in-house chip development through T-Head, robust cloud solutions via AliCloud, and its proprietary "Qwen" large language models.