Impact Analysis of Southbound Fund's Large Net Purchase of SMIC on the Valuation of the Hong Kong Stock Market Semiconductor Sector

Southbound Funds net purchased HK$731 million worth of SMIC shares on December 22, 2025, ranking third in net purchases that day [0]. Under this influence, the Hong Kong Stock Market Semiconductor Sector saw consecutive gains: On December 23, SMIC rose 2.54% and Huahong Semiconductor rose 3.34%; on December 24, SMIC (intraday gain over 5%) finally rose 3.12%, and Naxi Microelectronics rose 4.56% [0].

Regarding sector valuation, as of December 19, SMIC’s price-to-earnings ratio (TTM) was 119.45 and price-to-book ratio was 3.15, while Huahong Semiconductor’s P/E ratio (TTM) reached as high as 1257.51 [0]. These high valuations are supported by multiple non-Southbound Fund factors: SMIC raised prices for some production capacities by about 10% due to strong demand for mobile and AI applications and cost pressures [0]; TSMC plans to integrate 8-inch production lines and close some old lines by 2027, triggering expectations of tight capacity in mature manufacturing processes [0]; NVIDIA plans to deliver H200 chips to Chinese customers before the Spring Festival, boosting positive industry sentiment [0].

The large net purchase by Southbound Funds has a short-term boosting effect on the valuation of the Hong Kong Stock Market Semiconductor Sector, but long-term valuation support comes more from industry fundamentals. The current high valuation of the sector reflects market expectations for tight supply and demand, technological breakthroughs, and downstream demand growth in the semiconductor industry. As a leading company in the sector, SMIC’s valuation changes have a strong leading effect on the entire Hong Kong Stock Market Semiconductor Sector.

: The Hong Kong Stock Market Semiconductor Sector is currently at a high valuation level, with a risk of correction [0]; cyclical fluctuations in the global semiconductor industry may affect the stability of the sector’s valuation [0].
: Expectations of tight capacity in mature manufacturing processes will continue to support the valuations of related companies [0]; growth in demand for AI and mobile applications provides long-term growth momentum for the sector [0].

The HK$731 million net purchase of SMIC by Southbound Funds drove a short-term rise in the Hong Kong Stock Market Semiconductor Sector. The sector’s valuation is comprehensively influenced by multiple factors such as industry supply and demand relations, technological dynamics, and downstream demand. Currently, the sector’s valuation is at a high level, reflecting market optimism about industry growth, but attention should be paid to the risk of valuation correction.