Hong Kong's stock market has declined this year, diverging from the upward trend seen in global markets.

According to Invesco's Asia-Pacific Global Market Strategist David Chao, foreign investors have continued to favor US companies related to artificial intelligence (AI), while their stance towards China has been the opposite, maintaining an underweight position in Chinese equities.

He believes the Chinese technology sector is undervalued and anticipates this situation will change, with the sector likely receiving more investor attention in the coming years due to growing profits and rising exports related to Chinese technology.

Chao pointed out that the weak performance of the Hong Kong market is largely due to recent substantial IPOs clearly absorbing capital, coupled with a significant influx of funds into the AI field.

This has made it less likely for traditional stocks or indices to attract investor favor as they did in the past.

Earnings growth expectations for the Hang Seng Index this year are only around 10% to the low double digits, whereas the MSCI Korea Index is projected to see earnings growth as high as 200%, yet its valuation remains at a discount.

However, he believes the market is underestimating Chinese tech stocks.

Foreign investors previously viewed China merely as an emerging market similar to India.

But the current situation in China is entirely different; not only is its macroeconomic growth rate higher than that of countries like the US, but China has also demonstrated its investment value in fields such as AI, high-tech manufacturing, biotechnology, and quantum computing, which are thriving globally.

Simultaneously, the current policy environment is favorable for China's technological development.

He noted that the regulatory environment has now become a tailwind for the industry, and Chinese private tech enterprises have led much of the country's innovation in recent years.

He believes that if China aims to maintain mid-single-digit average annual economic growth in the coming years, the growth momentum will come from areas like AI, prompting Chinese policymakers to embrace AI more actively than their US counterparts.

Chao also observed that many Latin American pension funds are purchasing assets related to Chinese technology, indicating a resurgence of foreign investor interest in China, particularly in Chinese tech-related investments.

He stated that the primary principle for investing in Chinese equities is to select sectors with policy support.

Separately, with the Federal Reserve set to announce its interest rate decision, the market expects rates to remain unchanged.

Chao believes all focus for this meeting will be on the new Fed Chair, particularly his first press conference, and does not anticipate significant adjustments in the dot plot, which is still expected to show the FOMC likely keeping rates steady, with the possibility of a rate cut being greater than that of a hike.

He noted that the US labor market remains very strong, with non-farm payroll data in recent months exceeding expectations.

While rising energy prices have pushed overall inflation above the Fed's target, core inflation remains close to the Fed's comfort zone.

Following the US-Iran announcement of a deal, market expectations for rate hikes have become overly hawkish.

He expects the Fed to remain on hold for at least the next few months.

The firm will monitor the impact on energy prices following the opening of the Strait of Hormuz.

Even if a US-Iran deal is finalized later this week in Geneva, it is unlikely to have a significant impact on overall commodity prices in the short term, and the oil market may require about two more months to return to pre-conflict levels.