CITIC Securities: Korean Stocks Hit Circuit Breaker, Hong Kong Stocks Poised to Absorb Asia-Pacific Rotation Funds
Claire Weston
A fresh sell-off in US AI hardware stocks triggered a chain reaction across Asia — South Korea's KOSPI plunged over 8% intraday, hitting its circuit breaker, and closed down 10.8%; CITIC Securities argues Hong Kong equities, with low valuations and short-covering tailwinds, are the primary beneficiary of the resulting global rebalancing.
What is this US AI hardware sell-off actually about?
The Philadelphia Semiconductor Index fell 2.2% on July 27; SanDisk dropped 11.0% and SK Hynix 7.5%.
CITIC Securities' view: the core driver is not deteriorating AI demand but the market repricing the leverage and credit risk behind Big Tech's massive capex expansion.
This means → the sell-off is not "nobody wants AI anymore" — it is "who funds the buildout, and who bears the risk."
Big Tech keeps spending more — what exactly is the market afraid of?
After Google raised its 2026 capex guidance, combined capex expectations for the four major Hyperscalers (Google, Microsoft, Amazon, Meta) reached $731.9 billion for 2026 and $950.2 billion for 2027 — up 1.9% and 5.6% from late June.
Nvidia's financing model is the focal point: it provides guarantees and financing support to downstream customers, who then use the funds to buy more Nvidia chips — creating a closed loop tying cash flow directly to credit risk. In plain terms = Nvidia is both the seller and the loan guarantor; whether its customers can repay directly affects Nvidia's own risk exposure.
On top of that, SK Hynix and Nvidia have a partnership valued at $500 billion, and Nvidia is negotiating up to $250 billion in financing guarantees with OpenAI. CDS spreads — a market gauge of default-risk pricing — on North American tech giants have spiked.
CITIC Securities notes, however, that rental prices for AI chips such as H100 and B200 remain stable, and AI compute demand itself has not weakened. This reflects a panic driven more by expectations than by actual fundamental deterioration.
Why did Korean stocks fall the hardest — what is shifting in the memory-chip landscape?
The KOSPI plunged over 8% intraday, triggering its circuit breaker, and closed down 10.8%; the Nikkei 225 fell 4.0% on the same day.
CITIC Securities attributes the Korean rout to a systemic re-rating of the memory supply chain: CXMT's A-share listing opens a financing channel for capacity expansion, unlocking the medium-to-long-term prospect of domestic Chinese memory production scaling up.
Separately, The Information reported that domestically made immersion DUV lithography equipment — tools that etch chip circuits with deep-ultraviolet light, less precise than EUV but sufficient for memory chips — is entering commercialisation. If confirmed, the equipment bottleneck for Chinese memory producers would loosen significantly.
This means → the "oligopoly premium" that Korean memory giants previously commanded — valuations built on technological lockout and tight supply constraints — faces a structural correction as China's domestic supply chain continues to advance.
Why is Hong Kong positioned to capture these flows?
CITIC Securities sees Hong Kong equities as the primary beneficiary of the current global capital rebalancing, citing three advantages.
Cheap valuations: even after a July rebound, major HK indices trade at forward P/E ratios below historical averages. Capital inflows: rising shareholder returns, digested lock-up selling pressure, and a stabilising renminbi are reviving southbound fund allocation. Short-covering: short-sale turnover and outstanding short positions remain elevated — unwinding those shorts itself creates incremental buying.
In plain terms = Hong Kong stocks are "still cheap, attracting fresh money, and forcing shorts to buy back" — three forces pushing in the same direction.
What could go wrong with this call?
CITIC Securities flags several risks: an escalation in global geopolitical conflicts, deteriorating US-China relations, unexpectedly aggressive central-bank tightening worldwide, slower-than-expected AI commercialisation, and a wider-than-expected blow-out in US tech-giant credit spreads.
This means → whether Hong Kong can keep absorbing rotation flows ultimately depends on these risks staying contained — the report's stance is "conditionally bullish," not unconditionally optimistic.
Content is for reference only, not financial advice.