Southbound Capital Flows Shift: Profit-Taking on High-Flying Stocks and Accumulating Alibaba and Tence

Southbound capital activity has accelerated sharply in September, with total trading volumes reaching RMB 141.914 billion—nearly matching August’s level and up 153.08 percent year-on-year. Average daily net purchases climbed to RMB 7.844 billion, a 59.56 percent increase from last month and 246.16 percent higher than September of last year. These figures approach the peaks seen in early 2021, while daily turnover now surpasses the averages of that period.

The Hang Seng Index has mirrored this momentum by clearing the 26,000-point mark and delivering year-to-date gains in excess of 30 percent. The Hang Seng Tech Index has outperformed even further, rising more than 32 percent so far this year. Global economic realignment and supportive domestic policies have driven investors toward Hong Kong’s relative valuation advantage.

Within this context, southbound capital has shown clear sectoral preferences. Large banks such as China Construction Bank (00939.HK) and Industrial and Commercial Bank of China (01398.HK) have attracted inflows for their stable earnings and attractive dividends. Internet and technology leaders Tencent Holdings (00700.HK) and Alibaba-W (09988.HK) have also been top targets due to their AI initiatives and track records of innovation.

Over the past week, however, a rotation away from earlier winners has emerged. Stocks that posted substantial gains—including Kuaishou-W (01024.HK), Pop Mart (09992.HK), Hua Hong Semiconductor (01347.HK), Xiaomi Group (01810.HK), SMIC (00981.HK), and Lao Feng Xiang (06181.HK)—experienced some of the largest net outflows. These companies had delivered year-to-date returns ranging from 59 to 216 percent, but recent profit-taking and market corrections have weighed on their share prices.

New-consumption names Pop Mart and Lao Feng Xiang, once buoyed by niche product positioning, have seen demand cool. Secondary-market prices for Pop Mart’s core IP, Labubu, have fallen by RMB 3–11 per unit across generations, while the fourth-generation mini Labubu now trades over 50 percent below its launch price. Shifts in consumer enthusiasm and rationalization of spending have weakened growth expectations.

Kuaishou’s stock had soared on the back of short-video innovation and user growth, yet intensified competition and the unproven profitability of new e-commerce ventures have prompted some investors to step back. Semiconductor peers Hua Hong Semiconductor and SMIC enjoyed gains amid industry recovery and import substitution, but concerns about global competition and future order visibility have introduced a more cautious stance.

Xiaomi Group saw equity appreciation through expansion in smart cars and home ecosystems, but the global smartphone market’s transition to stock competition and challenges in overseas markets—such as changing trade policies and heightened local rivalry—have tempered investor enthusiasm.

Despite these recent outflows, these companies could reclaim investor favor by optimizing operations and enhancing core competitiveness. Increased R&D spending by technology firms, innovative marketing by consumer brands, and deeper localization efforts in semiconductors all have the potential to attract renewed capital flows. This rotation underscores a broader shift from chasing rapid share-price gains to focusing on fundamentals and sustainable long-term growth.

In contrast, Alibaba-W, Horizon Robotics (09660.HK), Tracker Fund of Hong Kong (02800.HK), Tencent Holdings, Meituan-W (03690.HK), and UBTECH Robotics (09880.HK) have seen increased allocations from southbound investors. Alibaba’s launch of Taobao Flash Delivery, leveraging Ele.me’s merchant base and heavy subsidies, has disrupted the food-delivery sector and showcased the group’s ecosystem prowess.

Tencent’s core gaming business continues to drive growth, its video-based advertising has expanded rapidly, and its sustained AI investments underpin long-term upside. At a market price of HKD 633.50, Tencent’s market capitalization stands at approximately HKD 5.81 trillion, representing 22.18 times its trailing non-IFRS net profit of HKD 261.996 billion as of June 2025—an attractive valuation relative to peers.

Meituan has maintained its competitive edge through an extensive delivery network and proprietary dispatch algorithms that preserve a loyal user base despite margin pressures. Its flash-delivery service peaked at 150 million daily orders in Q2 2025, with more than 35 percent coming from non-food categories. Abroad, the Keeta platform continues to expand in Hong Kong and Saudi Arabia, promising future revenue contributions.

This reallocation of capital highlights structural opportunities in the Hong Kong market and the critical role of corporate strategy and execution. The Hang Seng Index’s breakthrough above 26,000 points and the Hang Seng Tech Index’s strong gains affirm southbound investors’ ability to identify market inflection points. As competition intensifies, selecting companies with clear strategic direction, resilient fundamentals, and sustainable growth will be essential.

Looking ahead, the forthcoming “Top 100 Hong Kong Stocks” evaluation will assess firms on profitability, growth potential, competitive positioning, and capital-flow dynamics. This initiative aims to provide investors with a rigorous framework for identifying high-conviction opportunities in the evolving Hong Kong equity landscape.