On Wednesday (July 29), the broad-based ETF market continued to see substantial inflows. Since the start of July, and up to July 28, stock-type ETFs have attracted net inflows exceeding 425.1 billion yuan. Compared to the US and South Korean stock markets, investors here seem to be experiencing a bit more fortune. Based on Wednesday's trajectory, Tuesday's market dip appears to have been a successful buying opportunity... but a few points of gain pale in comparison to the sharp declines seen in technology stocks.
Technology Stocks Are Still Being Hammered
While the three major US stock indexes did not crash on Tuesday night, the Philadelphia Semiconductor Index faced heavy selling pressure. The South Korean market surged and then collapsed in the morning, plummeting over 11% and triggering another circuit breaker... This marks the ninth circuit breaker triggered in the South Korean stock market this year. The KOSPI index has fallen over 20% in just two days, which is truly baffling. As expected, every round of deleveraging is cataclysmic. I was perhaps overly optimistic; after the initial shockwave, there is an aftershock. According to institutional estimates, the market may enter a second peak of deleveraging within the next day or two. The South Korean government has simultaneously announced that it is internally studying measures to stabilize the domestic stock market.
Looking at the global decline in memory chip-related stocks on Wednesday, the damage is already extreme. Seeing fund holdings across the board showing -10% returns on Tuesday night, many investors have concluded that the AI cycle is over. Over the past few days, I've been intently listening to roadshows and gathering opinions. The consensus boils down to one key point: the AI cycle isn't ending, but the core trading narrative is shifting. Over the past year, the market's primary theme was "shortage and price increases." Now, we are entering a phase of "production capacity realization." This phase isn't without opportunities, but it's much more challenging. The market no longer blindly buys into high-growth sectors; instead, it demands more detailed scrutiny of capital expenditure, profitability, and end-user demand. The current problem is that once market sentiment turns to expecting sustained downward price corrections, rationality disappears. We are in a phase that ignores all positive news and magnifies any negative news. The Financial Times has reported that following the recent AI stock rout, Wall Street banks like Goldman Sachs and JPMorgan Chase have demanded additional collateral from hedge funds with overly concentrated positions. Once this negative feedback loop forms, it explains why even companies with fundamentally unchanged outlooks are being continuously sold off. But no pendulum swings in one direction forever. The current situation suggests sentiment is tilting towards the worst-case scenario, but the process of washing out leveraged positions still needs time to conclude. However, it's notable that this sell-off is exceptionally brutal. The heavy overhead supply of trapped investors means this has shifted from a blitzkrieg to a prolonged struggle. Even if a rebound occurs, my expectations are significantly lowered; frankly, recovering to half the losses would be considered a strong performance.
July's Top Performer is Hong Kong Internet Stocks
Following the series of shocks in the tech sector, capital is rotating into other areas. Besides small-cap stocks, Hong Kong stocks have seen the best gains recently. The widely tracked Hang Seng Tech Index has risen over 9% as of July 28. Interestingly, the performance of the Hang Seng Tech Index mirrors that of consumer staples. When I compared it to the Consumer Staples & Beverages ETF (515710), their gains were nearly identical!! However, the best-performing asset in Hong Kong isn't the Hang Seng Tech Index. The real standout is the Hong Kong Internet ETF (513770): Since June 26, it has surged over 16.4%, outperforming the Hang Seng Tech Index by more than 7%.
The recent rally in Hong Kong internet companies shares a similar logic to Apple's recent rise. Two months ago, Apple was criticized by Wall Street for "insufficient AI investment," "lack of long-term competitiveness," and "potentially missing the window of opportunity." Now, the narrative has completely changed. Analysts now classify companies like Apple as asset-light players in the AI era—they don't need to buy hundreds of thousands of GPUs or maintain massive capital expenditure through continuous debt issuance. Their cash flow is strong, and their balance sheets are easier to understand. Looking at the constituent stocks of the Hong Kong Internet ETF (513770), they are almost entirely composed of assets with less direct exposure to AI infrastructure investment. Among them, its third-largest holding, Meituan, has rebounded over 50% in the past month, flying under the radar.
Overall, this correction isn't a complete repricing of all technology assets. The pressure is concentrated on the AI hardware sector, which had high crowding, high valuations, and significant recent gains. Market funds aren't simply seeking safety; they are executing a more aggressive repricing. Capital isn't leaving the market en masse; it is rotating out of AI hardware and into previously overlooked sectors like software, consumer, and healthcare. However, market rotations are rarely gentle. The observable phenomenon is that each sector's gain is fueled by another sector's continued losses. Currently, software and AI hardware are behaving like a seesaw. Apple's upcoming earnings report will be a crucial catalyst. If Apple's results trigger selling, capital might flow back into the beaten-down AI hardware sector. If Apple continues to rise, the sell-off in AI hardware may persist. This rotation, however, clearly highlights that the Hong Kong Internet ETF (513770) represents the true leaders in the software space.
With the growing buzz around Tencent's WorkBuddy and Alibaba's Tongyi Qianwen model, when capital starts deciding what to believe in again, it's worth remembering that beyond the Hang Seng Tech Index, there is an ETF category called Hong Kong Internet ETFs... A MACD golden cross signal has formed, and these stocks are showing strong upward momentum!
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