Southbound funds have flowed into Hong Kong stocks for seven months in a row, of which the net inflow since June has exceeded 36.3 billion yuan. There may be an intention to bet on the "July 1 market".

In terms of individual stocks, since May, Meituan-W (03690.HK), CNOOC Limited (00883.HK), Li Auto Inc.-W (02015.HK), Kuaishou Technology-W (01024.HK) and Hong Kong Exchanges and Clearing (00388.HK) beat Tencent (00700.HK) to become the company with the largest southward capital inflow, of which Meituan-W received a net inflow of 9.929 billion yuan.

In the long run, Hong Kong stocks are expected to continue the rebound trend under the support of positive factors such as the marginal improvement of policy, the expansion of interconnection, and the low valuation level of Hong Kong stocks.

Continuous 7Net inflow for six months, exceeding99100 million yuan to buy Meituan

According to Wind data, the cumulative net inflow of southbound capital into Hong Kong stocks has exceeded 164 billion yuan since 2022 and has been net inflows for seven consecutive months since December 2021. Even in March, when Hong Kong stocks adjusted deeply, southbound funds did not stop flowing into Hong Kong stocks.

Specifically, from January to June this year (as of June 28), the net inflows of southbound funds into Hong Kong stocks were 35.7 billion yuan, 3.7 billion yuan, 39.6 billion yuan, 8.6 billion yuan, 39.8 billion yuan and 36.3 billion yuan respectively. It is worth mentioning that in March, when Chinese stocks fell sharply, southbound funds flowed 39.6 billion yuan; in April, when Chinese stocks fell again, southbound funds still had a net inflow of 8.6 billion yuan.

According to Caihua News Agency, four times since the beginning of this year, the monthly net inflow of southbound funds has exceeded 35 billion yuan, of which twice in the past two months (as of the 28th), which means that the monthly net inflow of southbound funds has reached a higher level this year since May.

July 1, 2022 is the 25th anniversary of the establishment of the Hong Kong Special Administrative region, and the market expects further policies to benefit Hong Kong and benefit Hong Kong on that day. With only two trading days away from "July 1", the net inflow of southward funds has reached 36.3 billion yuan in a month, and there may be an intention to bet on the "July 1 market".

In terms of individual stocks, in the rebound since May, there are 10 stocks with a cumulative net inflow of southward capital exceeding HK $2 billion. They are Meituan-W (03690.HK), CNOOC Limited (00883.HK), Li Auto Inc.-W (02015.HK), Kuaishou Technology-W (01024.HK), Hong Kong Exchanges and Clearing (00388.HK), Tencent (00700.HK), Geely Automobile (00175.HK), Wuxi Biologics (02269.HK), Li Ning Co. Ltd. (02331.HK) and Xiexin Technology (03800.HK).

In terms of net inflow, Meituan-W ranked first in the cumulative net purchase of southbound funds, reaching HK $9.929 billion, of which there were 47 days of net inflow and 27 days of net outflow, while CNOOC Limited was in the second place. the cumulative net purchase amount of southbound funds reached HK $8.704 billion, of which 51 days were net inflows and 18 days were net outflows, and the buying attitude was relatively firm.

In addition, since May, Li Auto Inc.-W and Kuaishou Technology-W have bought more than HK $6 billion, with net purchases of HK $6.426 billion and HK $6.231 billion, respectively. In comparison, southward funds to buy Li Auto Inc.-W attitude is more firm, during the 24-day net inflow, one-day net outflow only 1 day.

It is worth noting that Li Auto Inc. announced on the Hong Kong Stock Exchange today that on June 28, 2022 (US Eastern time), the company submitted a supplementary prospectus document in the United States to sell American depositary shares with a total amount of up to US $2 billion, with each additional American depositary share issued through the US stock ATM (that is, the ATM issuance plan) corresponding to two Class A common shares of the company.

As for other companies, Hong Kong Exchanges and Clearing, Tencent, Geely Automobile, Wuxi Biologics, Li Ning Co. Ltd. and Xiexin Technology have also become the key targets of southward funds. In the secondary market, Hong Kong stocks have rebounded strongly under the strong assistance of southbound funds. Take Huaxia Hang Seng Technology ETF, the largest in the market, as an example, it has risen nearly 50 per cent since its low on March 16.

The positive still exists, and Hong Kong stocks are expected to continue the rebound trend.

It is not unreasonable for southbound funds to flow into Hong Kong stocks. Since 2022, there has been a marginal improvement in the important factors that suppress the strength of Chinese stocks, that is, a change in the policy's attitude towards the Internet and the platform economy. In particular, such references as "supporting the sustained and healthy development of the platform economy" and "supporting the listing of digital enterprises in domestic and foreign capital markets" have directly ignited the enthusiasm of the market to be long Chinese stocks, and southward funds are also involved.

In addition, the introduction of interconnection incremental funds has also become one of the driving forces of the recent rebound in Hong Kong stocks. On June 28th, China Securities Regulatory Commission and China Hong Kong Securities Regulatory Commission announced that the inclusion of ETF into interconnection will be formally implemented on July 4. On the same day, the Shanghai and Shenzhen exchanges said that at present, the preparatory work for the business and technology for ETF to be incorporated into the interconnection mechanism has been basically completed.

The inclusion of ETF into interconnection will help to enrich the investment variety of interconnection and further facilitate the participation of domestic and foreign investors in the capital markets of the two places. According to the list of the first batch of ETF officially included in the Shanghai, Shenzhen and Hong Kong Stock Connect, a total of four Hong Kong Stock Connect ETF were selected, including TRACKER FUND OF HONG KONG, Hang Seng China Enterprises, Southern Hang Seng Technology and Anshuo Hang Seng Technology ETF.

In the long run, Hong Kong stocks are expected to get more southbound capital inflows. According to the Guangdong Development Fund, the future southbound capital inflows are expected to be at the hub of HK $80 billion, annual inflows of HK $300 billion and five years of inflows of HK $1.5 trillion, about 63 per cent of the current cumulative inflows of Hong Kong Stock Connect. In five years' time, southward capital will account for about 10 per cent of the market capitalization of Hong Kong stocks, up 4 percentage points from the current share.

At the same time, the valuation level of Hong Kong stocks is more attractive. Soochow Securities believes that from the valuation point of view, the Hang Seng Index PE (TTM,2022/6/27) is only 10 times, not only lower than the major markets in Europe and the United States, but also 13 times lower than the Shanghai Composite Index, in a global valuation depression. Compared with A shares, Hong Kong stocks are relatively stagnant: the Hang Seng Index has risen 6 per cent since May, lower than the Shanghai Composite Index by 10 per cent, and the Hang Seng Technology Index has risen 14 per cent, lower than the gem Index by 22 per cent.

Ye Shangzhi, chief strategist at Shanghai Securities, is also optimistic about the Hong Kong stock market. "at present, Hong Kong stocks have two advantages, one is valuation advantage, because Hong Kong stocks took the lead in adjusting last year, so although the valuation has rebounded now, Hong Kong stocks are still relatively dominant in valuation. Another advantage of Hong Kong stocks is the dominance of policies. At present, global economic growth is facing greater pressure. In order to control inflation, the Federal Reserve still has to raise interest rates and shrink its schedule. Monetary policy in the mainland has been moderately loose since last year, and various industries have introduced policies to stabilize growth one after another. " Ye Shangzhi said.