Analysis of the Impact of Large-Scale Southbound Capital Purchases on the Valuation of Hong Kong Stock Semiconductor Sector

Due to network connection issues, I will write a comprehensive analysis report for you based on the data already obtained.

---

Based on the latest data, southbound capital recorded a net purchase of

today, showing obvious structural reallocation characteristics [1]. The specific capital distribution is as follows:

Stock	Net Purchase Amount (HK$100 million)	Capital Movement
SMIC (0981.HK)	4.62	Top Net Purchase
Hua Hong Semiconductor (1347.HK)	3.93	Second Top Net Purchase
Tencent Holdings (0700.HK)	2.73	Continuously Favored
China Mobile (0941.HK)	-6.00	Top Net Sale

: Capital is flowing from the traditional telecommunications sector (China Mobile recorded a net sale of HK$600 million) to the semiconductor and technology sectors. This structural shift reflects a major adjustment in investors’ sector allocation in Hong Kong stocks [1].

---

Indicator	Value	Market Positioning
Current Stock Price	HK$77.00	-
Market Capitalization	HK$744.2 billion	Leading Hong Kong Stock Semiconductor Company
P/E (TTM)	74x	Above Industry Average
P/B	0.95x	Close to Book Value
Net Profit Margin	8.16%	Better Than Hua Hong Semiconductor
ROE	3.65%	-

Period	Increase	Excess Return Relative to Hang Seng Index
1 Month	+18.37%	Significantly Outperformed
6 Months	+63.48%	Substantially Led
1 Year	+95.43%	+57.92%
3 Years	+340.00%	+316.56%

Based on technical analysis results [0]:

• Trend Judgment
  : In an
  uptrend
  (breakout pattern, to be confirmed)
• Buy Signal
  : Buy signal triggered on January 15
• Key Resistance Level
  : HK$80.10
• Next Target Level
  : HK$83.12
• Support Level
  : HK$75.89
• Beta Coefficient
  : -0.14 (negatively correlated with the Hang Seng Index, with defensive characteristics)

: Southbound capital’s single-day net purchase of HK$462 million accounts for about 6.2% of SMIC’s average daily turnover (approximately HK$7.4 billion), which has significant marginal influence. The current P/E (TTM) of 74x is in the historical high range, reflecting the market’s growth premium for its position as a leader in domestic substitution [0].

---

Indicator	Value	Market Positioning
Current Stock Price	HK$102.60	-
Market Capitalization	HK$176.4 billion	Specialty Process Wafer Foundry
P/E (TTM)	127.62x	Extremely High Valuation
P/B	0.47x	Significantly Below 1
Net Profit Margin	2.69%	Weak Profitability
Operating Margin	-7.50%	On the Verge of Loss

Period	Increase	Remarks
1 Month	+51.44%	Strong Rebound
6 Months	+187.39%	Explosive Growth
1 Year	+333.83%	Super Stock
3 Years	+230.97%	-

Based on technical analysis results [0]:

• Trend Judgment
  :
  Sideways/No Obvious Trend
• KDJ Indicator
  : K=86.2, D=87.3, J=83.9 →
  Death Cross Signal
• RSI Indicator
  :
  Overbought Zone
  (Risk Warning)
• Trading Range
  : HK$83.80 - HK$105.27
• Beta Coefficient
  : 1.07 (positively correlated with the Hang Seng Index, with high elasticity)

: Hua Hong Semiconductor’s current P/E is as high as 127.62x, while its net profit margin is only 2.69%, indicating a weak profit foundation. The RSI is in the overbought zone, coupled with the KDJ death cross, creating short-term pullback pressure [0].

---

In 2025, southbound capital recorded a record net inflow of

, and the cumulative net inflow since 2026 has been [2][3]. This week (January 12-16), southbound capital recorded a total net inflow of nearly , with tech stocks continuing to receive additional positions [4].

Impact Dimension	Specific Performance
Upward Shift in Valuation Central Tendency	Leading stocks continue to receive capital purchases, driving the sector’s valuation from discount to reasonable/premium
Improved Liquidity	Average daily turnover has increased significantly, and turnover rate has risen
Increased Market Attention	The Hang Seng Tech Index still has significant room for valuation recovery
Improved Financing Environment	More semiconductor companies are considering listing in Hong Kong (e.g., Biren Technology) [5]

Hua Hong Semiconductor plans to acquire 97.4988% of the equity of Huali Microelectronics and raise supporting funds [1]. This merger and integration initiative:

• Strategic Significance
  : Strengthens 12-inch wafer capacity layout
• Market Reaction
  : Stock price rose more than 10% in a single day (January 2)
• Expected Effect
  : Enhances scale effect and market competitiveness

SPD International has given Hua Hong Semiconductor a

(potential upside of 17%), based on a 2025 EV/EBITDA valuation of 31.0x [6].

---

: Cautious Add

• Strengths
  : Leader in domestic substitution, relatively stable profitability, negative beta with the broader market provides defensiveness
• Risks
  : High valuation (74x P/E), affected by geopolitics, advanced process restrictions
• Catalysts
  : Q4 earnings report (February 12), increased domestic substitution policies

: Hold (Short-term)

• Strengths
  : Specialty process advantages, acquisition expectations, continuous attention from major capital
• Risks
  : Extremely high valuation (127x P/E), weak profitability, technically overbought
• Key Focus Areas
  : Progress in gross margin improvement, capacity release of Wuxi 12-inch fab

:

• AI-driven global semiconductor upcycle extended to 2027 (JPMorgan prediction) [5]
• Continuous inflow of southbound capital provides liquidity support
• Increased policy support for domestic substitution
• Release of vitality in Hong Kong’s tech innovation ecosystem

:

• Valuation has partially priced in expectations
• Fluctuations in the global semiconductor cycle
• Geopolitical uncertainty
• Changes in U.S. semiconductor policies towards China

---

Large-scale southbound capital purchases of SMIC and Hua Hong Semiconductor have had

on the valuation of the Hong Kong stock semiconductor sector:

1. Liquidity Injection
   : Single-day net purchases of hundreds of millions of Hong Kong dollars have significantly increased sector trading activity
2. Valuation Restructuring
   : Shift from traditional discount to growth premium, with upward shift in the valuation central tendency of leading stocks
3. Structural Optimization
   : Capital flows out of traditional telecommunications/financial sectors, with allocation concentrated in tech semiconductors

: In the short term, both stocks are in technically overbought/overvalued territory with pullback pressure. In the medium to long term, driven by the three factors of the AI wave, domestic substitution, and continuous inflow of southbound capital, the valuation re-rating trend of the Hong Kong stock semiconductor sector will continue. Investors should instead of chasing highs, focusing on targets with clear fundamental improvements.

---

[1] Securities Times - “Hong Kong Stocks Surge Across the Board! RMB Rises Sharply!” (https://www.stcn.com/article/detail/3568295.html)

[2] 21st Century Business Herald - “Southbound Capital Continues to Add Positions in Hong Kong Stock Market, Hong Kong Stock Tech 30 ETF (513160) Rises Over 1.7%” (https://www.sfccn.com/2026/1-14/2NMDE1MjBfMjA5NjQ2NA.html)

[3] Securities Times - “Major Move by Global Memory Chip Leader! Tech Giant Receives Large-Scale Southbound Capital Additions” (https://www.stcn.com/article/detail/3598571.html)

[4] Securities China - “Tencent Holdings Receives Over HK$5 Billion Net Inflow from Southbound Capital” (https://www.stcn.com/article/detail/3598571.html)

[5] Tiger Community - “Hong Kong Stocks Start 2026 with a Bang, Semiconductor Stocks Lead the Way” (https://www.laohu8.com/post/517825099764424)

[6] SPD International - “Hua Hong Semiconductor (1347.HK)/Hua Hong Company (688347.CH): Q3 Gross Margin Better Than Market Expectations” (https://www.spdbi.com/getfile/index/action/images/name/华虹半导体（1347.HK）、华虹公司（688347.CH）：三季度毛利率优于市场预期.pdf)

[0] Jinling AI Financial Database - Real-time Quotes, Technical Analysis, Company Fundamental Data