Emerging market equities have held up in 2026, but HSBC Asset Management points to a split within China between onshore and offshore listings. Year to date, the MSCI China Index, which is about 80% offshore, is down 7% in local currency terms, while the China A Index, which is 100% onshore, is up 10%. The gap reflects differing market composition and how each segment has responded to this year’s trading conditions.
HSBC links the onshore advance to sector exposure, with A-shares more tilted towards technology, industrials and materials, which connect to hard tech parts of AI supply chains. Offshore China technology is more concentrated in e-commerce and internet platforms, which has lagged in 2026. The onshore market has also been less sensitive to external shocks, providing some insulation from global headwinds, while policy support, a firmer renminbi and an extended US–China truce are flagged as factors that could influence sentiment towards Chinese assets.
Widening Performance Gap and Trading Opportunities
We are seeing a significant performance gap between onshore and offshore Chinese equities that we expect to continue in the coming weeks. The A-share market’s focus on AI-related hard tech is a key driver of this strength. Recent data from May 2026 shows this gap widening, with the CSI 300 Index gaining 4% while the Hang Seng Tech Index remained flat.
For derivative traders, this suggests establishing a pairs trade by going long futures on the FTSE China A50 or CSI 300 indices. This position can be hedged by taking a short position in futures tracking the Hang Seng China Enterprises Index (HSCEI). This strategy directly plays the divergence between the domestic, tech-focused economy and the more globally-sensitive offshore listings.
Given the positive momentum, we see opportunities in selling out-of-the-money puts on A-share ETFs to collect premium. This follows the People’s Bank of China’s recent announcement on May 28th to lower the reserve requirement ratio for banks specializing in technology loans. This strategy benefits from either a continued rise or a period of consolidation in the onshore market.
Currency Tailwinds and Sector-Specific Exposure
A strengthening renminbi is another key factor that could attract global capital, and we are positioning for further appreciation. The USD/CNH exchange rate has recently broken below the key 7.15 level, supported by stronger-than-expected export data for April. We would consider using call options on the yuan to gain upside exposure with defined risk.
We believe options on specific onshore semiconductor and industrial automation ETFs offer a more targeted way to gain exposure to this trend. China’s industrial output in these sectors grew 15% year-over-year in the first quarter of 2026, underscoring the fundamental strength. This pattern is reminiscent of the 2019-2020 period when domestic-focused tech policies led to a similar, sustained outperformance of the ChiNext index over offshore counterparts.
