Analysis Report on Sector Rotation and Capital Flows in the Hong Kong Stock Market

Based on obtained market data and professional analysis, I will systematically interpret the relationship between sector rotation and capital flows in the Hong Kong stock market.

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According to data analysis, the daily sector price changes and capital flows in the Hong Kong stock market show a

(correlation coefficient: 0.9769), indicating that capital flows are one of the core drivers of sector rotation. [0]

Sector	Price Change	Capital Flow (HK$ hundred million)	Leader/Grouper
Non-ferrous Metals	+2.8%	+5.2	Top Gainer
Media	+2.1%	+3.8	Top Gainer
Machinery	+1.5%	+2.1	Top Gainer
Paper Packaging	-1.8%	-1.5	Top Loser
Semiconductors	-1.2%	-2.3	Top Loser
Food & Beverages	-0.9%	-0.8	Top Loser

Southbound funds recorded a net purchase of

on the day, continuing the recent trend of sustained inflows. Cumulative net purchases reached approximately HK$4.5 billion this week, and approximately HK$12 billion this month. Southbound funds prefer heavyweight blue chips, technology growth stocks, and non-ferrous resource targets. [0]

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• Support from Declining US Dollar Index:
  Adjusted policy expectations for the Federal Reserve have weakened the US dollar, supporting the prices of industrial metals denominated in RMB [1]
• Expectations of Global Economic Recovery:
  Expectations for improved demand for industrial metals (copper, aluminum) have increased, coupled with supply constraints [1]
• Demand for Risk-Hedging Allocation:
  Amid geopolitical uncertainties, precious metals such as gold have gained capital favor as safe-haven assets
• Shandong Gold rose over 6%
  reflecting concentrated capital allocation to gold stocks [0]

The sector recorded a net inflow of HK$520 million on the day, ranking first among all sectors, with a turnover rate of 4.2%, indicating active capital participation.

• Inflection Point in AI Application Commercialization:
  Shifting from “available tools” to “realizable value”, sub-sectors such as games and short dramas have become the focus of capital rotation [1]
• Leading Players like Tencent and NetEase:
  With their new game reserves, they are expected to see margin growth; upgrades in multimodal interaction technology are driving innovations in short drama content production
• Valuation Recovery Opportunities:
  The media sector, which has fully adjusted in the early stage, has valuation appeal

A net inflow of HK$380 million, indicating continued capital optimism towards the AI application segment.

• Demand for Automated Equipment:
  Benefiting from traditional industrial upgrading driven by the “AI+” initiative
• Stabilization of Construction Machinery:
  Strong domestic infrastructure investment coupled with export resilience [1]
• Breakthroughs in High-end Manufacturing:
  Domestic substitution opportunities under the background of independent controllability

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• Large Early Gains:
  The semiconductor sector accumulated significant gains in the first week of 2026, leading some capital to take profits [2]
• Increased Trading Crowding:
  The sector’s turnover rate reached 5.8%, the highest among all sectors, indicating overheating trading risks [0]
• Need for Valuation Digestion:
  Targets such as SMIC need to digest valuation pressure after substantial early gains

The Hong Kong stock semiconductor sector still has industrial logic support — the National Integrated Circuit Industry Investment Fund increased its shareholding in SMIC H-shares from 4.79% to 9.25%, coupled with the sector heat brought by the listing of “Hong Kong’s first GPU stock” Wallbrec Technology [2].

• Slow Domestic Demand Recovery:
  The performance of the traditional consumer industry is still in the bottoming stage, with limited improvement in fundamentals [3]
• Shift in Capital Preferences:
  Rotation from traditional consumption to technology growth and cyclical resources
• Nine Dragons Paper and Qinqin Food fell over 3%
  reflecting the market’s cautious attitude towards the consumer sector [0]

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According to the research of brokerage chief analysts, the market will follow three main themes in 2026: [4]

Theme Direction	Core Logic	Key Tracks
Self-reliance in Science and Technology	Accelerated Domestic Substitution	AI, Semiconductors, Robotics
Industrial Upgrading	Breakthroughs in High-end Manufacturing	New Energy, High-end Equipment
Strategic Resource Security	Pricing Power of Commodities	Non-ferrous Metals, Rare Earths

• The rise of Hong Kong stocks in 2024-2025 was mainly driven by improved liquidity
• In 2026, with the upward earnings cycle, market drivers will shift to earnings realization and cash flow improvement [3]
• The Hang Seng Index’s 2026 earnings growth is expected to rebound to 10.8%

• Hang Seng Technology is gradually transforming from the traditional pro-cyclical (Internet) sector to the main battlefield of AI applications and hard technology [3]
• The weight of new economy-related components in the Hang Seng Index has increased from 17% to nearly 50%

Based on historical data analysis, the Hong Kong stock market has an obvious

: [5]

• Full Bull Market Stage:
  Commodities (non-ferrous metals) lead the rally, followed by technology (semiconductors)
• Structural Market Stage:
  Technology sectors perform more prominently with greater elasticity
• Defensive Stage:
  Capital flows back to defensive sectors such as consumption and pharmaceuticals

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• Index Level:
  The Hang Seng Index is consolidating in a narrow range at current levels, with continued structural differentiation
• Capital Side:
  Sustained inflows of southbound funds provide support, and expectations of improved overseas liquidity are rising
• Catalysts:
  Focus on the implementation of the 15th Five-Year Plan policies, progress in AI applications, and changes in the US dollar trend

Strategy Type	Allocation Direction	Logical Support
Aggressive	Non-ferrous Metals (copper, gold), Semiconductors, AI Applications	Upward industry cycle + policy support
Defensive	High-dividend Blue Chips, Pharmaceuticals	Rising defensive demand amid increased market volatility
Balanced	Leaders in Technology + Resources + Consumption	Capture rotation opportunities and reduce portfolio volatility

1. Trading Crowding in Semiconductor Sector:
   The current turnover rate is at a high level; guard against short-term pullback risks [1]
2. Uncertainty in Federal Reserve Policy:
   The US dollar trend has a significant impact on commodity prices
3. Earnings Verification Period:
   Pay attention to the digestion of valuation bubbles by annual report earnings forecasts

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Current sector rotation in the Hong Kong stock market presents the

:

1. Strong correlation between capital flows and performance
   (correlation coefficient 0.9769), capital flows are an important reference for judging sector trends
2. Top gaining sectors have solid logic:
   Non-ferrous metals benefit from dual attributes of pro-cyclicality and risk hedging; media benefits from accelerated commercialization of AI applications
3. Pullback sectors are not due to fundamental deterioration:
   Semiconductors are mostly technical adjustments; paper packaging and food & beverages are affected by slow domestic demand recovery
4. 2026 investment themes are clear:
   Technology + overseas expansion remain the medium-term themes, and pro-cyclical sectors such as non-ferrous metals have aggressive opportunities

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[0] Jinling AI Market Data (January 9, 2026 Midday Data)

[1] Eastmoney - “2026 First Week Sector Forecast: Dual Drivers of Policy + Capital” (https://caifuhao.eastmoney.com/news/20260104144258804458070)

[2] Eastmoney - “Three Sectors Lead Gains in Hong Kong Stocks” (https://caifuhao.eastmoney.com/news/20260103093233530639340)

[3] Sina Finance - “GF Securities 2026 Hong Kong Stock Strategy Outlook: Step by Step, Rising with the Tide” (https://www.xincai.com/article/nhfeziz8297130)

[4] China Fund News - “Seven Brokerage Chief Analysts’ Assessment of the 2026 Market” (https://www.chnfund.com/article/AR20251219101614753)

[5] Eastmoney - “Cyclical Performance of Metals and Semiconductor Sectors in Hong Kong Stocks” (https://cdn-img.panewslab.com/yijian/2026/1/3/images/705ac3e902b347f51822e4b0490a5c20.png)