On November 3, the three major Hong Kong stock indices closed higher for the third consecutive trading day. Although the overall gains were not large, compared with A-shares, they were enough to reveal some warmth.
The sectors holding up the Hong Kong stock indices today were mainly large consumer names and some core internet giants. Pork, dining, beer, dairy products, entertainment, sports, and even gambling stocks generally showed clear strength, with many leading consumer companies rising more than 5%. JD.com surged 5.6% on a strong bullish candle, while Tencent briefly touched HK$400 during the session before closing at HK$397.2. Alibaba briefly returned above HK$100 intraday, and although it ended the day up only 0.1% at HK$99.55, it at least touched the threshold of the "red bottom" for a second consecutive day.
But the picture elsewhere was far more brutal. Memory semiconductors, optical communications, and PCB concepts fell sharply again. Zhongji Innolight plunged 10.92%, Kingboard Laminates dropped 10.2%, Kinwong Electronic fell 9.4%, and Cambridge Technology declined 8.91%. AI hardware, the most crowded trade in the previous period, became the area where positions were most concentratedly cashed out that day.
This bout of counter-trend strength in Hong Kong stocks deserves closer examination.
What exactly is behind the surge in southbound buying?
Today, southbound funds recorded a net purchase of HK$23.42 billion in Hong Kong stocks on the day, setting a new single-day high in nearly half a year. Among them, Tracker Fund of Hong Kong alone saw a net purchase of HK$16.507 billion, accounting for 70% of the entire day's net buying. CSOP Hang Seng TECH Index ETF drew HK$4.314 billion, and Hang Seng China Enterprises Index ETF attracted HK$4.308 billion. The three ETFs together totaled HK$25.129 billion, more than the total net buying for the whole day.
This means that all other targets combined were actually net sold. SMIC saw a net selloff of HK$380 million, Kingboard Laminates had HK$188 million in net selling, and Alibaba was also on the net sell list.
Just one day earlier, on November 2, southbound funds were still net selling HK$4.469 billion, and had already been net selling for 14 consecutive trading days, accumulating about HK$41.791 billion in net outflows.
On one side was a retreat lasting more than two weeks; on the other, a sudden aggressive lunge of HK$23.4 billion in a single day. On one side, the index closed higher; on the other, AI hardware was battered badly. On one side, heavy buying of broad-based ETFs; on the other, withdrawal from specific individual stocks.
The question is: why did southbound funds dare to buy so aggressively at the very moment AI hardware was plunging? And why was Tracker Fund of Hong Kong the preferred target?
Tracker Fund of Hong Kong tracks the Hang Seng Index, whose constituents cover internet, consumer, financials, insurance, mainland property, and high-dividend names, with relatively limited weighting in AI hardware. So the memory, optical communications, and PCB stocks that fell hardest today simply do not account for enough of the Hang Seng Index to seriously hurt Tracker Fund of Hong Kong. Buying Tracker Fund of Hong Kong is equivalent to using the index's diversification to dilute the landmine of the "AI hardware plunge."
In fact, CSOP Hang Seng TECH Index ETF also saw HK$4.3 billion in buying, but its scale was less than 30% of Tracker Fund of Hong Kong's. This precisely shows that funds are restrained in their exposure to the single "technology" style. Although the Hang Seng TECH Index closed higher that day, its constituents carry a higher weighting in the hardware chain, and overlap more with the direction that funds were avoiding that day.
From a style perspective, buying tech ETFs is about "seeking elasticity," while buying Tracker Fund of Hong Kong is about "building a base position." The strategic consideration should be this: base position first, elasticity second, and the amount allocated to elasticity is very restrained.
In addition, the appearance of SMIC, Alibaba, and Kingboard Laminates on the net sell list today shows that funds are not "bottom-fishing everything that has fallen." What they want is overall low-valuation exposure to Hong Kong stocks, not a directional bet on a single industrial chain that is being repriced.
In reality, divergence within southbound funds has always existed. Some are cashing out of crowded trades, while others are shifting toward high dividends and AI models/applications. Today merely pushed this divergence into a more extreme form of expression.
Is this a one-day wonder or a genuine shift?
After 14 consecutive trading days of net selling totaling about HK$41.8 billion, today's sudden turn by southbound funds is an encouraging change. However, it would be more prudent to understand it as a restorative replenishment rather than an instant reversal in trend judgment. After cutting positions for nearly three weeks, funds finally got policy tailwinds and are restoring part of their exposure — a reflexive rebalancing move.
What triggered this move was support from valuations and policy. As of now, Hong Kong stocks overall remain in a historically low range. The Hang Seng TECH Index currently has a price-to-earnings ratio (PE-TTM) of about 20.33 times, sitting at the 12th percentile of the past 10 years. Apart from lows during a few extreme market episodes, this is still a very undervalued level.
Low valuations alone do not constitute a reason to buy, but they do constitute a precondition for "daring to look when prices fall." On the policy front, moves were made in succession between November 2 and 3. Three government departments held a symposium to deploy market stabilization tools. On November 3, the third batch of swap facility operations landed, totaling 100 billion yuan, with 31 institutions participating in the bidding and a winning rate of 10bp. The relending program for stock buybacks and increases was converted from a temporary arrangement to a long-term institutional arrangement, with the rate lowered from 1.25% to 1%.
This combination punch directly improves overall market liquidity and risk appetite. It benefits first the broad-based heavyweight directions such as large-cap blue chips, financials, and domestic-demand consumer sectors, rather than AI hardware stocks already at high levels. Tracker Fund of Hong Kong, as a Hang Seng Index ETF, is the most direct and largest-capacity tool for capturing this layer of benefit.
There is also a less conspicuous but persistent backdrop: in the low-interest-rate environment on the mainland, Hong Kong's high-dividend assets and targets with AI growth logic still hold allocation value for mainland funds. But "having allocation value" and "daring to go heavy on a single stock" are two different things. On the day when the crowded AI hardware trade reversed, funds chose to use broad-based products to carry allocation demand while stripping away individual stock-level uncertainty. This is a typical left-side positioning posture — building a base position at low levels without rushing into aggressive directional bets at the structural level.
What signals should be watched going forward?
Overall, whether for A-shares or Hong Kong stocks, the pressures that need to be faced have not disappeared. Low valuations are a fact, but low valuations can stay low for a long time, especially when the global adjustment of technology positions has not yet run its course.
The global AI technology pullback is still ongoing. Overseas risk aversion, changes in the dollar and U.S. Treasury yields, the pace of Hong Kong IPOs and refinancing, and reductions by industrial capital are all variables hanging above liquidity.
Another noteworthy clue is the mismatch between domestic and foreign capital. In late October, foreign capital recorded a net inflow of about HK$11.1 billion into Hong Kong stocks, while Stock Connect saw a net outflow of about HK$20 billion during the same period, creating a divergence of "domestic capital selling, foreign capital buying." Foreign capital has recently favored optional consumer retail, banks, pharmaceuticals and biologics, hardware equipment, semiconductors, and ETFs, which is not entirely in sync with southbound funds' phased cashing out of some internet leaders and hardware stocks.
Under this divergent landscape, Tracker Fund of Hong Kong, as a Hang Seng Index ETF, happens to be a common vehicle where domestic and foreign capital diverge less. It does not require you to make a directional judgment on any single sub-sector — it only requires you to form a minimal consensus that "Hong Kong stocks are overall undervalued, downside is buffered by dividends, and policy is providing support."
To verify going forward whether this wave of return flow is a "one-day trip" or something more sustained, it will be necessary to continuously track whether southbound net buying can continue, whether ETF subscription/redemption and holdings data follow through, and whether market turnover cooperates. Most critically, it depends on when AI hardware stops falling (which of course has an important positive correlation with U.S. AI stock trends).
If the AI hardware chain continues to be pressed down, funds will most likely remain in the "buy index, sell individual stocks" mode. Only when AI hardware stabilizes and policy effects begin to transmit into earnings expectations can funds shift from broad-based base positions toward more aggressive structural exposure.
Until then, the fact that Tracker Fund of Hong Kong was bought up to HK$16.5 billion conveys only a simpler choice: at a moment when Hong Kong stocks are overall cheap, policy is providing support, but single-track risks are still being released, use the most diversified tool to first occupy a position that will not make a big mistake.
This is a left-side base position allocation, not a right-side clarion call. Whether the direction is right still needs to be voted on by later turnover and holdings data.
(Full article ends.)
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Gelonghui Statement: The views in this article are all from the original author and do not represent the views or positions of Gelonghui. Special reminder: Investment decisions must be based on independent thinking. The content of this article is for reference only and does not constitute any actual operational advice. Trading risks are borne by the individual.
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