Bank of China International: Net inflows of southbound funds have slowed down this year. Pay attention to the internet, new consumption, and semiconductor sectors.

The Bank of China International released a research report stating that net inflows of southbound trading have slowed since 2026, and the Hang Seng Tech Index is under pressure amid escalating geopolitical risks. As of April 21 this year, the average daily turnover of Hong Kong stocks reached HK$272.5 billion, higher than the HK$254.2 billion for the same period last year and the full-year average of HK$249.7 billion in 2025. As of April 21, the Hang Seng Index has risen by 3.34%, while the Hang Seng Tech Index has fallen by 8.24%. The Hang Seng China AH Premium Index has dropped from 123.46 on December 31, 2025, to 117.44 on April 21, 2026, indicating an average premium of 17.44% for A shares relative to H shares. The bank noted that net inflows of southbound trading since the beginning of this year have reached 215 billion RMB, a decrease of 62.1% year-on-year, mainly due to the high base in the first four months of 2025. Overall, the momentum of inflows in southbound trading in 2026 remains resilient and plays an important role in improving investment sentiment and stock selection strategies. Over the years, mainland-related companies have gradually dominated the Hong Kong stock market. According to data from the Hong Kong Stock Exchange, as of the end of March 2026, stocks of mainland-related companies accounted for 78.63% of the total market value and 89.73% of the total turnover. As of April 21, southbound trading accounted for 20.79% of the average daily turnover in Hong Kong, compared to 23.36% in 2025, 17.3% in 2024, 14.1% in 2023, and 11.8% in 2022. Looking ahead, the bank expects that mainland investors' strong demand for Hong Kong stocks through southbound trading will continue in 2026, mainly benefiting from the selection of more high-quality technology and high-end manufacturing stocks, the attractive valuations of Hong Kong stocks, and high dividend yields. Southbound trading will be an important driver of potential long-term revaluation in the Hong Kong market. Investment behavior data shows that southbound investors are focused on the internet, new consumption, and semiconductor sectors. Bank of China International recommends that investors pay attention to the following active southbound trading targets: TENCENT (00700): Consolidate core competitiveness under the AI wave, continue strategic execution, and flexible shareholder return plan; Xiaomi-W (01810): Actively invest in AI, Siasun Robot & Automation, and chips, expected to have short-term results, and long-term build a "human car home" AI ecosystem; POP MART (09992): Continuously improve efficiency, optimize the supply chain, and monetize IP, laying the foundation for long-term growth. BABA-W (09988): Firmly increase investment to achieve the medium to long-term goals of cloud business and rapid retail. Kuaishou (01024): Increase AI investment, strengthen competitive advantages, enhance commercialization, and content ecosystem integration. HUA HONG SEMI (01347): May enter a cycle of rising average selling prices in 2026, with 12-inch products having room for price increases.