Key Takeaways:
Southbound funds rotated HKD1.6 billion out of Tencent Holdings (0700.HK) into semiconductor and hardware stocks on May 26, data from Stock Connect showed.
"Capital is rotating from mega-cap internet names into AI infrastructure and semiconductor plays as investors reposition for the next phase of the AI buildout," said Jing Jie Yu, analyst at Morningstar.
Lenovo Group (0992.HK) received the largest net inflow at HKD780.6 million, followed by Semiconductor Manufacturing International Corp (0981.HK) at HKD655.8 million and Hua Hong Semiconductor (1347.HK) at HKD495.2 million. Tencent (0700.HK) led outflows at HKD1.6 billion, with Alibaba Group (9988.HK) at HKD1.3 billion and Yangtze Optical Fibre and Cable (6869.HK) at HKD526.4 million. Total Southbound turnover reached HKD157.44 billion, with net outflow of zero.
The rotation signals shifting investor preference toward hardware and chip stocks that are direct beneficiaries of AI infrastructure spending, while internet giants face profit-taking after recent rallies. Lenovo shares surged 15.5% on the day, while SMIC gained 5.7% and Hua Hong Semi jumped 10.5%.
Lenovo Leads Inflows as AI Infrastructure Thesis Gains Traction
Lenovo's strong inflow came after the company posted its fastest quarterly revenue growth in five years, with AI-related businesses accounting for 38% of total revenue. Net profit climbed nearly sixfold to $521 million, well above analyst expectations of $291 million. DBS analyst Jim Au raised Lenovo's target price to HK$23.50 from HK$19.00, saying the company's latest quarterly performance strengthened the case for investors to view it as an AI infrastructure and hybrid AI platform company rather than merely a PC manufacturer.
Morningstar expects Lenovo's infrastructure segment revenue to rise 35% in fiscal 2027, supported by aggressive server deployments and broader enterprise AI adoption. Goldman Sachs also raised its price target on Lenovo to HK$27 with a buy rating.
Shanghai and Shenzhen Connect Flows Diverge
On the Shanghai-Hong Kong Stock Connect, CNOOC (0883.HK) was the most active stock with the highest net inflow of HKD956 million, while SMIC saw the highest net outflow of HKD1.3 billion. On the Shenzhen-Hong Kong Stock Connect, SMIC recorded the highest net inflow of HKD1.9 billion, while Alibaba saw the highest net outflow of HKD1.1 billion.
The divergence between the two connect programs highlights differing positioning strategies among mainland investors, with Shanghai-based funds favoring energy names and Shenzhen-based funds rotating into semiconductor stocks.
The Hang Seng Index and Hang Seng Tech Index moves on the day reflected this rotation, as capital flowed out of heavyweight internet names into industrial and technology hardware stocks. The shift comes as global investors increasingly price in sustained AI-related capital expenditure, benefiting companies positioned along the hardware and semiconductor supply chain.
This article is for informational purposes only and does not constitute investment advice.
