Single-day net subscriptions of 2.6 billion yuan! Hong Kong stock ETFs show a key turning-point signal in fund flows

Author: Yan Jun (Original headline: “Hong Kong stock ETFs show a key inflection-point signal in fund flows!” Fund manager: “The valuation of this sector is cheaper than in most periods over the past five years”)

Hong Kong stocks’ internet sector rebounded strongly yesterday, sweeping away the gloom in Hong Kong stocks this year.

On July 8, several Hong Kong-listed internet ETFs saw single-day gains of more than 6%. Before that, investors had “endured” over a 30% year-to-date drawdown. Only in June, the Hong Kong Stock Connect internet sector fell by more than 13%. One fund manager remarked: The valuation of this sector is already lower than in most periods over the past five years.

So far this year, the Hang Seng TECH Index has also had several short-lived rallies, but there has been no obvious showing on the fund-flow front. This time, during the sharp surge, funds clearly flowed into Hong Kong internet stocks. Intraday data on the 8th showed that on that day, the Fubon Hong Kong Stock Connect Internet ETF received 655 subscriptions, with a total subscription amount of RMB 2.66B, reversing the net-redemption status since late February. That night, iFinD data showed that the ETF’s total asset size increased by RMB 3.85B, ranking first among all ETFs in the market.

This clear shift in funds has led the market to look ahead to how Hong Kong stocks will perform next: will it drive a broad-based rise across Hong Kong stocks, or will it be directed toward AI application endpoints such as the internet?

ETF data reveals a shift in funds toward the Hong Kong internet sector

Hong Kong internet stocks finally received an important signal of a shift in fund flows.

On July 8 during trading hours, a sharp-eyed investor noticed that the Fubon Hong Kong Stock Connect Internet ETF showed signs of net subscriptions. As of the close, the ETF had 655 subscription orders totaling RMB 2.66B; there were only 3 redemption orders totaling RMB 3.0 million, making the in-market net subscriptions about RMB 2.65B.

Looking at a longer timeframe, over the past 60 days, 20 days, 10 days, and 5 days, the ETF’s funds have all been net outflows. Over the past 60 days, net outflows exceeded RMB 18.2 billion, and the net outflow rate is close to 29%.

On the evening of July 8, ETF update data on asset size showed that the Fubon Hong Kong Stock Connect Internet ETF’s scale increased by RMB 3.85B, leading the entire ETF market.

Compared with the Hang Seng TECH Index, which has broad index characteristics, the compilation scheme of the Hong Kong Stock Connect Internet Index gives it a naturally higher “internet content.” After excluding hardware equipment and traditional industry constituents, its software-and-tech attributes stand out more clearly, making it a more representative benchmark for observing the Hong Kong internet ecosystem.

This year, Hong Kong stocks have been hit by severe valuation compression. This compression was not caused by an underlying deterioration in fundamentals. Expectations of tighter offshore liquidity, the slower pace of credit repair among domestic residents, and extreme crowding in A-share AI hardware have drained most market liquidity. As one of the most liquidity-sensitive assets, Hong Kong internet stocks were heavily suppressed in this “siphon” effect. The size of the Fubon fund’s Hong Kong Stock Connect Internet ETF once fell from RMB 90 billion to RMB 32.7 billion.

E Fund provided a set of very interesting data: as of the first half of this year, across the whole market, 193 Hong Kong stock ETFs had a combined asset size of RMB 505.5 billion, with net outflows of RMB 42.9 billion. Through structural inspection, the funds didn’t simply “run away”—they “switched.”

Specifically, 14 ETFs tracking the Hang Seng TECH sector recorded total net inflows of RMB 28.82B; 14 ETFs tracking the Hong Kong-listed innovative drug theme recorded total net inflows of RMB 13.33B; and 9 ETFs tracking the Hong Kong information technology theme recorded total net inflows of RMB 768 million. Across the three themes, total net inflows exceeded RMB 42.9 billion.

In contrast, 27 ETFs themed around Hong Kong dividend/growth returned net outflows of RMB 20.41B; there were 16 ETFs themed on Hong Kong internet stocks with net outflows of RMB 14.95B; and for Hong Kong securities and non-bank finance there were only 2 ETFs with net outflows of RMB 16.4B. The three theme ETFs combined recorded net outflows exceeding RMB 51.7 billion.

“Large-scale funds are moving from defensive assets into offensive assets.” The conclusion from E Fund is that, on the capital side, Hong Kong stocks are transitioning from the previous single “internet technology narrative” toward a multipolar transformation of “innovative drugs + hard technology.”

This time, ETF funds again flowed into the Hong Kong internet sector. The Hong Kong-listed innovative drug stocks that rebounded first show some signs of profit-taking. Whether funds will switch next is worth watching.

Several key inflection points hit the Hong Kong stock market in July

From fund companies’ perspective, in this round of rebound, early July is a key inflection point.

Wang Xin, fund manager of the Southern Fund’s Hong Kong Stock Connect Internet ETF, said: Since entering July, the factors that had previously suppressed Hong Kong internet stocks have reversed one by one.

First, crowded trading has unraveled. On July 1, news that overseas giants sold idle AI computing power triggered global semiconductor panic. The Philadelphia Semiconductor Index fell by more than 11% cumulatively over two days. SK Hynix slumped 14.57% in a single day, and A-share AI hardware saw a stampede-like pullback. Funds were forced to withdraw from high levels and began searching for undervalued assets at lower levels.

Second, concentrated industrial catalysts have landed. In China, leading large model providers released a new-generation MoE-architecture model. Major payment platforms officially launched AI open platforms, providing merchants with access to agents. A major short-video platform’s AI subsidiary completed its first round of financing. Signals that AI is diffusing from a hardware-investment mainline into the application layer have grown increasingly dense. Hong Kong internet leaders, with threefold advantages—scenarios, data, and ecosystem—are the core carriers for AI commercialization landing. The valuation logic is shifting from traditional traffic-based valuation to a re-rating of AI scenario value.

Third, Southbound funds have clearly returned, showing obvious inflow signals. Wind data shows that as of July 8, within five trading days, Southbound funds net bought HK$ 37.78B, already exceeding the HK$ 27.11B recorded in the entire month of June.

Multiple fund companies interviewed agreed that Hong Kong stocks may be poised to start a round of repair/recapture rally in the near term.

One fund company told a reporter: On July 7, Pan Gongsheng, Governor of the People’s Bank of China, said at the Hong Kong Fixed Income and Money Summit and the Bond Connect forum that in the future, the country’s foreign exchange reserves will continue to increase their allocation ratio to assets in Hong Kong, injecting more momentum for the development of Hong Kong’s capital markets.

Previously, on January 13, 2025, Governor Pan first mentioned “significantly increasing the allocation of national foreign exchange reserves to assets in Hong Kong.” The Hang Seng Index and the Hang Seng TECH Index touched their stage-level bottoms that day, then began a rebound. After that, with the AI industry narrative boosted by DeepSeek, they entered a 2- to 3-month upswing.

“Although foreign exchange reserve funds may not necessarily directly allocate to Hong Kong’s equity market, the trend of sovereign fund increasing its allocation could improve the liquidity environment, release policy endorsement signals to international capital, and convey policymakers’ intention to stabilize Hong Kong’s capital market.” The aforementioned fund company believes that this move will help raise Hong Kong stocks’ importance in global asset allocation—especially during periods when other markets experience major adjustments—allowing the Hong Kong market to diversify risk to some extent.

Broad-based gains, or funds tilting toward AI application endpoints represented by the internet?

Is this rebound in Hong Kong mainly a broad-based rise across the market, or a tilt of funds toward AI application endpoints represented by the internet? Fund companies generally lean toward the latter.

Wang Xin said: Overall, the core logic of this round of rebound in Hong Kong stocks is a triple resonance of “oversold recovery + industry catalysts + capital returning,” not simply emotion-driven. In terms of valuation levels, even after nearly a week of rebound, sector valuations remain in historically extremely low ranges, still far from a reasonable central level. In terms of timing, after short-term consecutive gains, there may be technical consolidation, but in the medium term, a continued repair remains likely.

“Previously, the market generally treated Hong Kong internet giants as AI ‘consumers,’ because they need to continuously invest huge amounts of capital to buy computing power, thereby dragging down profit margins. But as their own large models gradually mature, the market has realized these companies have advantages in owning models, application scenarios, and massive traffic—making their commercialization path increasingly clear.” Fubon Fund further analyzed the reasons it is optimistic about the Hong Kong internet sector.

Huang Zhi, fund manager of CCB/China-Trust Prudential CSI Information Security, pointed out that currently, the valuation of the computer software sector is in a below-the-middle-range zone over the past three years; the public offering fund allocation ratio is at a historically low level; and software companies’ intelligent transformation continues to be promoted. The share of AI-related value-added revenues is expected to rise steadily. Two major themes worth watching in the second half: first, fundamental software for tech innovation (信创) foundations—where valuations are relatively low and orders continue to land; second, AI monetization paths that are relatively clear—AI orchestration, intelligent programming, and industry Agent software.

For the durability of the Hong Kong rebound, Wang Xin suggested observing three key variables: first, whether Southbound funds can continue to return rather than just a short-term pulse; second, whether AI industrial catalysts can continue to land, especially subsequent iterations of large models and expansion of application scenarios; third, the impact of the U.S. Federal Reserve’s FOMC meeting signals in July on overseas liquidity expectations. If the above directions can form a positive resonance, the sector has a chance to move from oversold repair into trend-like upside driven by fundamentals.

(Editor: Xu Nannan)

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