West Securities: Overseas AI May Slow, Domestic Capex Takes Over, Bullish on HK Internet Stocks

Author: The Wall Street Journal

The Democratic Party's sweeping victory in the US midterm elections has brought a series of overseas "imported risks" to fruition, quietly shifting the global asset pricing logic.

Cao Liulong's team at Western Securities believes that following the midterms, market concerns over delays in US AI data center (AIDC) construction have intensified. Coupled with expectations for eased US-Iran relations, US Treasury yields and the dollar are weakening simultaneously.

The Democrats' winning platforms (ending the US-Iran conflict, delaying AIDC construction) all point toward a medium-term trend of a weaker dollar. The expiration of year-end temporary funding and the upcoming debt ceiling negotiations early next year further strengthen this window.

Behind the anticipated slowdown in overseas AI deployment lies a more profound conflict over利益 distribution among tech companies, the public, and the government. This structural dilemma is unlikely to dissipate in the near term.

In contrast, domestic tech giants operate with a lower capital expenditure base and significantly more favorable financing costs, creating a quiet narrative window of "rise in the East, decline in the West" for the US and Chinese AI industries. Based on this, Western Securities maintains its strategic bullish stance on Hong Kong-listed internet stocks.

Midterms Conclude, Imported Risks Begin to Materialize

Following the Democratic Party's decisive win in the US midterm elections, previously warned overseas imported risks are gradually unfolding. The US market fears disruptions to the pace of AIDC construction, while expectations for easing US-Iran tensions rise, putting simultaneous pressure on Treasury yields and the dollar.

Election results concluding does not mean overseas volatility will subside. Post-victory, the Democrats have emphasized stricter scrutiny of data center projects. Currently, the entire process remains in an emotional fermentation stage, with potential for future reversals. Given that we are still navigating the current interest rate cycle, overseas market volatility should not be underestimated.

For A-shares, external imported risks remain, but the bottom region is gradually coming into focus. Policy support has visibly increased: On November 6, State Council Premier Li Qiang chaired an executive meeting of the State Council, explicitly requiring to "improve mechanisms to stabilize the capital market, enhance the intrinsic stability of the stock market, and promote steady and healthy development of the capital market"; the State Council's Report on Financial Work submitted for deliberation by the Standing Committee of the National People's Congress on November 3 also reiterated these points.

Meanwhile, sustained high-intensity net inflows into broad-based ETFs are forming a bottom support. Major broad-based ETFs have recorded consecutive net inflows for 25 trading days from September 28 to November 6. Cumulative scale exceeds CNY 414.9 billion based on CSI 300 and Innovation Boards ETF metrics, with daily average net inflows for CSI 300 ETF recently hitting a new high for the second half of the year.

Chart: Recent Net Inflow Trends of CSI 300 and Innovation Boards ETFs

Democratic Victory Reinforces Medium-Term Trend of Weaker Dollar

Beyond short-term market volatility, what deserves closer attention is the medium-term trend. Historical experience shows that after Democrats win midterms, the dollar tends to weaken relatively; after Republicans win, it tends to strengthen. Past election results related to Trump's presidency or candidacy have also confirmed this pattern.

Chart: Historical Correlation Between US Election Results and the US Dollar Index

There is logical support as well. The core issues underpinning the Democratic victory (ending US-Iran conflict, delaying AIDC construction) all act as downward pulls on the dollar. Recent oil prices have already begun reflecting expectations for de-escalating geopolitical tensions.

Meanwhile, the Democrats are more inclined to increase spending in welfare areas such as healthcare and education, which will further elevate fiscal pressures and spark market concerns over US fiscal sustainability.

At the timeline level, the expiration date for temporary appropriations on December 11 and the anticipated government debt ceiling issue around Q1 2027 warrant close attention. The debt ceiling problem will most likely be resolved eventually, but the protracted standoff between the two parties may create a trading window for a "weaker dollar."

Slowing AIDC Construction: Surface Level is Votes, Underlying Core is Taxation

The anticipated slowdown in AI data center construction reveals that public dissatisfaction is only superficial; the underlying contradiction stems from an imbalanced fiscal revenue distribution structure.

The proportion of US corporate pre-tax profits to GDP has reached a historical high, yet corporate income tax revenue has rapidly fallen from previous peaks to approximately USD 380 billion, significantly below the January projection path of the Congressional Budget Office (CBO).

Data center investments qualifying for one-time pre-tax deductions are a major factor contributing to this gap. The more corporations spend in the current period, the less taxable profit they report, thereby pressuring actual government tax revenue. In other words, the benefits of AI infrastructure construction accrue to large tech corporations, while social costs and tax losses are borne jointly by the public and the government.

Chart: Divergence Between US Corporate Pre-Tax Profits and Federal Corporate Income Tax Revenue

The Democrats used the midterm elections as a stepping stone. The core logic is to complete利益 redistribution, not to end AI construction itself. Short-term, this change will likely cause rhythmic disruptions to data center construction schedules. This trend is already emerging: the share of related restrictive bills concerning data centers in 2026 has increased markedly.

There are three key observation nodes ahead: the ERCOT report released on December 10, 2026, legislative developments following the opening of state legislatures on January 12, 2027, and administrative measures taken after new governors take office on January 19.

US and China AI Enter a Narrative Window of "Rise in the East, Decline in the West"

Objective doubts regarding slowdowns in overseas AI provide domestic AI a chance to reiterate the "rise in the east, decline in the west" narrative. The core differences lie in two dimensions: capital expenditure pressure and financing costs.

At the capex level, the absolute base for domestic tech giants is significantly lower than that of overseas cloud providers, resulting in relatively less pressure to slow down. Data shows that in 2026, US cloud providers' capex generally exceeded operating cash flow, and the situation is expected to worsen further in 2027; whereas domestic cloud providers are projected to see improvements in 2027.

Chart: Comparison of CapEx and Operating Cash Flow Between Top US and Chinese Cloud Providers

At the financing cost level, the gap between US and Chinese cloud providers is particularly stark. Domestic top cloud groups rely primarily on RMB financing, resulting in significantly lower costs: using Alibaba as an example, as of March 2026, its weighted average interest rates for RMB-denominated short-term and long-term bank borrowings were only 1.5% and 2.5%, respectively.

Conversely overseas, high-interest USD debt has become a significant constraint on AIDC expansion: Oracle's newly issued bonds in November 2026 carried coupon rates as high as 7% to 8.65%, while CoreWeave's senior unsecured notes ranged from 8.5% to 9.75%.

Chart: Comparison of Financing Rates and Bond Coupon Yields Between Top US and Chinese Cloud Providers

This structural divergence makes the domestic AI industry chain relatively more resilient to risks, with growth expectations proving steadier.

Strategic Allocation Window: Maintaining a Bullish Stance on HK-listed Internet Stocks

Western Securities' report argues that while overseas imported risks perturb global risk appetite, they also open a narrative window for domestic entities to "leapfrog." The post-midterm window for a phased weakening of the dollar provides a strategic accumulation opportunity for HK-listed internet stocks.

The report outlines allocation strategies around three main threads:

Real Estate and Consumption: If overseas liquidity hits an inflection point and the external environment improves, a series of domestic fiscal policies are expected to accelerate implementation, supporting property prices and repairing household sector balance sheets. The report believes that at that time, some real estate stocks may offer repair upside of two times or more, while the consumer sector could trend toward a "bull market in core consumer assets."

HK-listed Internet: Should overseas liquidity shocks occur, HK stocks may adjust noticeably in tandem; if overseas liquidity hits an inflection point, HK stocks could welcome valuation repricing. Since the Fed initiated QE in March 2020, HK stocks subsequently rallied over 170%. In the context of autonomous controllability, the domestic computing power supply chain is also expected to repair synchronously.

Gold and Non-Ferrous Metals: If overseas liquidity shocks materialize, gold and non-ferrous metals will face temporary pressure; if a liquidity inflection point emerges, the narrative of a "commodity supercycle" is expected to return.