Southbound funds accelerate "shopping" for Hong Kong stocks, with net purchases exceeding HKD 228 billion this year.

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By our reporter Mao Yirong

Since the beginning of this year, southbound capital has continued to increase its holdings in the Hong Kong stock market, becoming an increasingly important source of incremental capital for the Hong Kong market. Data from Wind Information shows that as of the close of trading on April 2, the net buy-in size since the start of the year reached HK$228.08B.

From the overall trend, southbound capital’s deployment shows a clear sector preference. Specifically, based on Hang Seng Industry Level 1 sectors, the top five sectors by net purchases by southbound capital this year are Information Technology, Consumer Discretionary, Financials, Energy, and Real Estate Construction, at HK$47.64B, HK$31.63B, HK$21.97B, HK$17.7B, and HK$51.37B respectively. The top five individual stocks are Tencent Holdings, Xiaomi Group, Meituan, Kuaishou, and Pop Mart, with net buy amounts of HK$23.31B, HK$7.69B, HK$6.28B, HK$6.11B, and HK$3.1B respectively.

Looking ahead, Zhou Junzhi, Chief Macro Analyst at CICC, said that southbound capital has been an important source of incremental capital for Hong Kong stocks in recent years, with public funds and insurance funds making up an important part of southbound capital. In the future, insurance funds are expected to continue to increase allocations to the Hong Kong market, and key allocations will likely remain in high-dividend sectors such as banks and utilities. At the same time, many high-quality A-share companies with new-quality productive forces characteristics, as well as industry sub-sector leaders, are choosing to list in Hong Kong, and the composition of the Hong Kong asset pool is undergoing fundamental optimization. The listing of high-quality assets is expected to attract global capital to increase allocations to Hong Kong assets.

Partial to traditional blue chips

Looking at individual stocks, since the beginning of the year, Country Garden, Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Sincere China have seen top ranks in share increases by southbound capital, receiving additional holdings of 1.71B shares, 1.49B shares, 1.25B shares, 956M shares, and 86.15M shares respectively.

Behind the increased enthusiasm for individual stocks, the allocation logic by industry dimension is also becoming more prominent. From the sector perspective, since the beginning of this year, banks, oil and other traditional blue-chip stocks have been favored by southbound capital. For example, PetroChina Company Limited received an additional 453 million shares.

Especially since March, the distinctive feature of southbound capital’s contrarian deployment has been particularly clear. Data shows that since March, southbound capital’s net buying amounts in sectors such as Information Technology, Energy, and Consumer Discretionary have ranked among the top.

Worth noting is that although some individual stocks have not received very large share increases from southbound capital, they have seen significant growth in market value. Data shows that Tencent Holdings received an additional 86.147 million shares from southbound capital, and the market value in the interval increased by HK$41.49B since the beginning of the year; Meituan received an additional 103 million shares, and the market value in the interval increased by HK$8.73B; Industrial and Commercial Bank of China received an additional 1.71B shares, and the market value in the interval increased by HK$11.55B.

With long-term, continuous positioning, the depth of Stock Connect holdings for Hong Kong shares has also moved into a more substantive stage. Currently, the proportion of Hong Kong Stock Connect holdings out of total shares for 45 stocks has already exceeded 50%. For example, Dazhong Public Utilities, China Telecom, Shandong Molong, and Green Energy Environmental Protection are 74.92%, 71.31%, 69.01%, and 68.87% respectively.

In addition, since the beginning of the year, ETF products have also received notable purchases from southbound capital. For example, it increased holdings by 3.12B units in the Southern Hang Seng Tech; increased holdings by 194 million units in the Tracker Fund of Hong Kong; and increased holdings by 98.10 million units in the Hang Seng Tech ETF. By using ETFs to build positions in Hong Kong large-cap or technology sectors, it reflects that the trend of passive investing is strengthening.

Market liquidity has improved significantly

As southbound capital flows in, it has become one of the important factors driving improvement in Hong Kong stock market liquidity. Li Yujie, a strategy research analyst at the Research Institute of Huatai Securities, believes that further improvements to mutual market access have enhanced the Hong Kong stock market ecosystem. In 2025, southbound capital’s net buy-in totaled HK$1.4 trillion, pushing up Hong Kong stock average daily trading value from HK$133 billion in 2024 to HK$247.3 billion. The turnover rate of the Hang Seng Hong Kong Stock Connect Index rose to around 0.8%, narrowing the gap with the CSI 300 Index. In a positive cycle of good targets and capital, the previously liquidity-scarce situation in Hong Kong stocks has been greatly improved.

Goldman Sachs believes that it expects southbound capital’s net buy-in scale in 2026 to be about $200 billion, mainly because Mainland investors have strong demand for allocating to Hong Kong stock assets.

The current Hong Kong stock market has formed a parallel funding structure with southbound capital and foreign capital. Huang Wentao, Chief Economist at CICC, said that in terms of capital structure, the two main sources of strength in the Hong Kong stock market are foreign capital and southbound capital. Among them, foreign capital can be further divided into trading-oriented funds and allocation-oriented funds, while southbound capital is mainly composed of public funds and insurance funds.

Multiple institutions believe that Hong Kong stocks’ subsequent liquidity will be sufficient. Goldman Sachs said that in 2026, the Hong Kong stock market will enjoy a favorable liquidity environment, supported by factors including a continued trend of weakening in the medium-term US dollar, the ongoing acceleration of the IPO issuance pace, strong purchases by southbound capital, and foreign investors’ still-conservative allocation to China stocks. Among them, in recent years, Middle East investors have consistently been an important source of support for both private equity and public equity areas.

“Some indications suggest that international capital may have already flowed into Hong Kong in the near term. The interbank offered rate in Hong Kong has fallen to a 7-month low, the trading participation proportion of southbound capital has remained stable, trading volume in the Hong Kong stock market has increased somewhat, and the real estate market is also entering a further recovery phase.” Liu Jinzun, Goldman Sachs’ Chief China Stock Strategy Analyst, said to reporters from Securities Daily.

In terms of valuation levels, the Hong Kong stock market’s own allocation cost-performance advantage continues to stand out. Zhang Qiyao, Chief Strategy Analyst at Industrial Securities, believes that compared with other global markets, the current valuation of Hong Kong stocks is lower, and the impact from liquidity shocks may be relatively smaller. At the same time, as the earnings-reporting season approaches its end, Hong Kong stocks may be able to “fight with a lighter load” going forward. As of March 27, the proportion of companies that have released their 2025 annual reports in the Hong Kong stock market is close to 70%, with a market value proportion of 88.5%. In particular, most core leading companies have already disclosed their performance, so the negative impact of performance falling short of expectations on the market is relatively limited.

In Huang Wentao’s view, in the medium term, April will be a key validation period for Hong Kong stocks to move from “buying opportunities driven by sentiment” to “buying opportunities driven by performance.” The first-quarter reports and full-year guidance of leading internet and AI companies will determine whether this round of rebound can further upgrade from the repair of risk appetite to a main upward leg driven by earnings.

Looking globally, capital is also increasing its positions in Hong Kong stocks. “From the perspective of global fund flows, international hedge funds and long-term capital are also gradually replenishing their Hong Kong stock positions,” Huang Wentao said. Some global asset-management institutions have begun to shift funds from overvalued markets such as the United States to more diversified allocations globally, and the Hong Kong stock market will become one of the important beneficiary directions. Meanwhile, as the Hong Kong IPO market warms up and sectors such as technology and resources improve in performance, the participation of international “smart money” has clearly increased, reflecting a marginal improvement in risk appetite.

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