Source: Zhongjin Dim Sum
Authors: Liu Gang, Zhang Weihan
Overall, Hong Kong stocks weakened in the third quarter. In particular, the trend declined after August. The index once hit a new low during the year, and there was also a clear outflow of foreign capital (“How to characterize and analyze foreign investment?”). However, southbound capital continued its buying trend, in stark contrast to the continued weakness of northbound capital (Chart 2). As an important participant in southbound capital, how are the Hong Kong stock holdings of mainland public funds and how are there any changes in industry allocation? We answered the above questions by sorting out the Hong Kong stock holdings of public funds in the third quarter report.
Overall trend: Public Hong Kong stock holdings bucked the trend and increased in the third quarter, and the magnitude was higher than the overall southbound
The total size of public funds that can invest in Hong Kong stocks has shrunk.Overall, up to the third quarter, there were 3,237 public funds (excluding QDII) that can be invested in Hong Kong stocks in the mainland, with total assets of RMB 2.6 trillion, down RMB 210.6 billion from the second quarter, accounting for a total of 11,384 non-commodity funds and 28.4% and 16.2% of RMB 16.1 trillion. Among them, there were 1,774 active biased funds (total size 1.7 trillion yuan), and the overall size was also down 170 billion yuan from the second quarter. In terms of issuance, the number and scale of new launches in the third quarter was slower than in the second quarter, with an average of 44 new development funds per month, adding 15.9 billion yuan, compared with 50 in the second quarter and 24.3 billion yuan.
Hong Kong stock positions rebounded slightly in the third quarter, and the southward share of public equity also rebounded.The 3,237 public funds mentioned above hold Hong Kong stocks with a market value of 386 billion yuan, up 4.2% from RMB 370.4 billion in the second quarter. Considering that during this period, the Hang Seng Index fell 5.9%, and Hang Seng Technology closed up only slightly by 0.2%, which indicates that overall public funds may be actively increasing their holdings in Hong Kong stocks. Currently, Hong Kong stock holdings account for 20.6% of total holdings, up 2.3 percentage points from 18.3% in the second quarter. Looking further at active-biased equity funds, Hong Kong stocks held 274.9 billion yuan in the second quarter, which was also higher than the 267.8 billion yuan in the second quarter. The share of holdings rose to 18.4% from 16.5% in 2Q23. In addition, public offerings increased slightly by 0.2 percentage points to 18.0% in southbound holdings of RMB 2.3 trillion.
Chart 1: List of the number and scale of mainland public offerings and other public funds that can invest in Hong Kong stocks
Note: Data as of September 30, 2023
Chart 2: Compared with the recent obvious outflow of northbound capital, southbound capital maintained an inflow trend
Chart 3: Overseas active capital also flows out of the Hong Kong stock market, in stark contrast to the continued inflow of southbound capital
Chart 4: As of 3Q23, there were 1,774 mainland active-biased equity funds that can invest in Hong Kong stocks, with a total size of 1.7 trillion yuan...
Note: Data as of September 30, 2023
Chart 5:66 more than 2Q23, with a scale reduction of 170 billion yuan
Note: Data as of September 30, 2023
Chart 6: The size of new development funds in 3Q23 (excluding QDII) was 47.7 billion yuan, a significant slowdown from the 2Q23 new issuance of 72.9 billion yuan
Note: Data as of September 30, 2023
Chart 7: The size of the 3Q23 New Development Fund of Active Biased Equity Funds was 12.7 billion yuan, a significant decrease from the 2Q23 IPO of RMB 40.8 billion
Note: Data as of September 30, 2023
Chart 8: As of 3Q23, the number of Hong Kong stock funds that can be invested in is 3,237, with a total size of 2.6 trillion yuan...
Note: Data as of September 30, 2023
Chart 9:... 135 more than 1Q23, and the scale decreased by RMB 210.6 billion
Note: Data as of September 30, 2023
Chart 10: As of 3Q23, there were 1,774 mainland active-biased equity funds that can invest in Hong Kong stocks, with a total size of 1.7 trillion yuan...
Note: Data as of September 30, 2023
Chart 11:66 more than 2Q23, down 170 billion yuan in size
Note: Data as of September 30, 2023
Chart 12: The size of new development funds in 3Q23 (excluding QDII) was 47.7 billion yuan, a significant slowdown from the 2Q23 new issuance of 72.9 billion yuan
Note: Data as of September 30, 2023
Chart 13: Active biased equity funds, the size of the 3Q23 new development fund was 12.7 billion yuan, a significant decrease from the 2Q23 new development of 40.8 billion yuan
Note: Data as of September 30, 2023
Chart 14: Mainland public holdings in Hong Kong stocks rebounded slightly. In 3Q23, they held 386 billion yuan, up from RMB 370.4 billion in 2Q23
Note: Data as of September 30, 2023
Chart 15: The 3Q23 active biased public fund held a Hong Kong stock position of 274.9 billion yuan, accounting for a recovery of 18.4% of the fund's stock holdings
Note: Data as of September 30, 2023
Chart 16: As of 3Q23, mainland public funds accounted for 18.0% of the total southbound market value...
Note: Data as of September 30, 2023
Chart 17:... a slight increase of 0.2 percentage points from 17.8% in the second quarter of 2023
Note: Data as of September 30, 2023
Chart 18: Hong Kong stocks account for the market value of the top 120 active biased public funds in mainland China (1/2)
Note: Based on Wind's unanimous expectations; fund size as of September 30, 2023
Chart 19: Hong Kong stock holdings account for the market value of the top 120 mainland active-biased public funds (2/2)
Note: Based on Wind's unanimous expectations; fund size as of September 30, 2023
Chart 20: List of ETF and index fund products that can invest in Hong Kong stocks in the Mainland
Note: Based on Wind's unanimous expectations; fund size as of September 30, 2023
Industry allocation: The holdings of leading biomedical companies have increased significantly, and food, beverage and utilities have declined
The share of biomedicine, energy, diversified finance, and technology hardware increased; the share of media and entertainment, utilities, food and beverage declined.The overall position share of the new economy fell to 69.2% from 70.7% in the second quarter, while the share of the old economy increased 1.5 percentage points to 30.8%. By industry segment, biomedicine, energy, diversified finance and technology hardware had the highest increase in holdings; media and entertainment, utilities, and food and beverage declined the most. In terms of absolute allocation, media and entertainment, energy, and consumer services had the highest holdings; industries such as commercial and professional services, household and personal goods, and retail had lower holdings. Compared to historical levels, energy, communication services, transportation, and capital goods are currently at high levels; consumer durables and clothing, financial services, food and beverages, and technical hardware are at historic lows.
The positions of leading biomedical companies have increased significantly, and the dispersion of positions has increased.At the individual stock level, the mainland public offering continues to invest heavily in leading companies such as Tencent, Meituan, CNOOC, and China Mobile. However, compared to the second quarter, Pharmaceutical Biotech, Kuaishou, and CNOOC ranked in the top three in terms of market value growth, while Tencent, BYD, and China Resources Brewery experienced the biggest decrease in market value. At the same time, Cinda Biotech and Xiaopeng Motor also replaced SMIC and China Resources Brewery to enter the top ten heavy-held stocks, and the number of funds held by Pharma Biotech and Cinda Biotech also increased significantly. Furthermore, the concentration of heavy-stock stocks declined further. The top 10 heavyweight stocks accounted for 60.8% of the market value of the top 100 heavy-held stocks, down 0.5 percentage points from the second quarter. The top 3 heavyweight stocks fell to 36.9% from 40.5% in the second quarter.
Chart 21: The new economy is still the main preference of mainland public funds as a whole for allocating Hong Kong stocks, but the share of shares held fell from 70.7% in 2Q23 to 69.2%
Note: Data as of September 30, 2023
Chart 22: The share of healthcare and energy sectors increased significantly in 3Q23, but the share of communication services and optional consumption declined markedly
Note: Data as of September 30, 2023
Chart 23: The market value of shares held by industries such as energy and communication services is at its highest level since 2020; financial services and technology, hardware and equipment, etc. are at historically low levels
Note: Data as of September 30, 2023
Chart 24: In the overall shareholding structure of southbound capital, the share of the old economy rose to 46.0%
Note: Data as of September 30, 2023
Chart 25: The market value of the top 10 Hong Kong stock holdings in 3Q23 accounted for 60.8% of the market value of the top 100 heavily traded Hong Kong stocks, a slight decrease of 0.5 percentage points from 2Q23
Note: Data as of September 30, 2023
Chart 26: The market value of the top 3 heavily traded stocks was HK$85.3 billion, accounting for 36.9% of the market value of the top 100 heavily traded Hong Kong stocks
Note: Data as of September 30, 2023
Chart 27: In 3Q23, the three sectors with the highest market value of Hong Kong stocks held by mainland active-biased public equity funds were communication services, optional consumption, and energy, respectively
Note: Data as of September 30, 2023
Chart 28: Communications services maintain the highest share in the Hong Kong Stock Connect shareholding industry
Note: Data as of September 30, 2023
Chart 29: The individual stocks with the largest inflows and outflows of capital to the south in 3Q23 (top ten active stocks based on connectivity)
Note: Data as of September 30, 2023
Chart 30: Hong Kong stocks with active biased fund positions in 3Q23 (1/2)
Note: Based on Wind's unanimous expectations; fund position data as of September 30, 2023; valuation data as of October 30, 2023
Chart 31: Hong Kong stocks with active biased equity fund positions in 2Q23 (2/2)
Note: Based on Wind's unanimous expectations; fund position data as of September 30, 2023; valuation data as of October 30, 2023
Chart 32: Heavy-duty stocks with the biggest increase or decrease in 3Q23 compared to 2Q23
Note: Based on Wind's unanimous expectations; fund position data as of September 30, 2023; valuation data as of October 30, 2023
Prospects: Leveraging by the central government is symptomatic, transitioning from “bottom of policy” to “bottom of sentiment”
The Hong Kong stock market and A-share markets both “broke” and declined in the third quarter of 2023. On the one hand, it was because the rise in US bond interest rates exceeded expectations (“Some Different Characteristics of the Current Round of US Bond Interest Rate Rise”), and on the other hand, because domestic growth and policy expectations weakened again, and the market was even worried that the possibility of introducing further policy support would decline. Furthermore, the incomplete “symptomatic treatment” of the policy has also caused the market to “respond lackluster” to many policies since July, which is not enough to solve the current challenges facing China's growth in credit relief.The latest change now is that the central government has taken a critical step in the direction of “treating the symptoms” by adding leverage.It is probably more important than other policies introduced since the end of July. It helps to ease market concerns about policy ineffectiveness, and also helps deal with the problems of leverage and credit contraction (“The Market Implications of Central Leveraged Market”). Of course,If the scale is larger in the future and is further optimized in line with the real estate policy, it may bring better results.
Overall, the market is at the “bottom of the policy.”However, considering that this year has been repeated many times and external disturbances still exist,It may take some time to digest, then gradually transition to “sentiment bottom” and “market bottom”(“Historical bottoms and rebound characteristics of Hong Kong stocks”). However, on the basis of this policy direction, we believe that we can have more positive expectations about the future market reaction. If more stimulus and strength increase in the future, compounded by the lower valuation, sentiment, and positions of Hong Kong stocks, it will not be difficult for a wave of rapid rebound to occur. At this time, we can focus on overfalling rebound and more flexible sectors, such as biotechnology, the Internet, and new energy. However, more sustained upward potential may also require continued policy support to form a virtuous cycle and a positive upward trend. Until then, we reaffirm the dumbbell strategy of both offense and defense (high dividends and high-quality growth stocks).
Editor/jayden