Boosted by market policies exceeding expectations, the Hong Kong stock market has set a record high trading volume for four consecutive days. As of the close, the Hang Seng Index surged nearly 4%, breaking through 20,600 points. The Hang Seng Tech Index rose over 7% at one point during the trading session, closing up nearly 6%. The cumulative increase for this week has exceeded 20%.

From September 24th to 26th, the turnover of the Hong Kong stock market was 242.3 billion Hong Kong dollars, 254.8 billion Hong Kong dollars, and 302.9 billion Hong Kong dollars respectively. The turnover of the Hong Kong stock market reached 445.7 billion Hong Kong dollars yesterday, setting a new historical high.

Regarding the recent surge in trading volume, institutions believe that this indicates incremental funds pouring in, with some long-term foreign funds, hedge funds, local, and domestic funds successively entering the market. Against the backdrop of the Fed rate cuts, the Hong Kong stock market, already more sensitive to liquidity, has been driven by a combination of policy measures, cheap valuations, high buyback enthusiasm, and multiple bullish factors, fueling the current strong uptrend in the Hong Kong stock market.

Including Northbound capital, multiple sources of funds continue to increase their allocation to Hong Kong stocks, while mainland investors are actively buying through the Hong Kong Stock Connect. According to Wind data, as of Thursday, the net inflow of Southbound funds since September has exceeded 30 billion Hong Kong dollars, totaling over 490 billion Hong Kong dollars this year, an increase of over 56% compared to the total of 289.4 billion yuan in 2023.

Northbound funds aggressively buy Alibaba shares in September! Selling Meituan, Tencent.

In September, the amount of southbound funds inflow was 30 billion Hong Kong dollars, showing a slight decrease compared to the previous month, but still maintaining a trend of net fund inflow for 15 consecutive months.

Looking at the top five stocks in terms of fund inflows and outflows, $BABA-W (09988.HK)$ After being included in the Hong Kong Stock Connect, it has become the 'new favorite' of southbound funds, attracting crazy buying from northbound investors with a total inflow amount exceeding 37.4 billion Hong Kong dollars, dominating the top of the list; other stocks heavily bought by funds include $KUAISHOU-W (01024.HK)$Please use your Futubull account to access the feature.$ICBC (01398.HK)$Please use your Futubull account to access the feature.$WUXI BIO (02269.HK)$Please use your Futubull account to access the feature.$CCB (00939.HK)$.

On the other hand, Northbound funds selling off leading individual stocks.$MEITUAN-W (03690.HK)$This month, Meituan's increase is close to 30%, with the stock price nearly doubling this year, which may lead to some mainland funds taking profits and selling off. In addition, $TENCENT (00700.HK)$Please use your Futubull account to access the feature.$CNOOC (00883.HK)$Please use your Futubull account to access the feature.$XIAOMI-W (01810.HK)$Please use your Futubull account to access the feature.$CHINA MOBILE (00941.HK)$ The selling amount is also relatively large.

According to the calculations of GTJA, with the continuous increase in the allocation of southbound funds, the fund's holding ratio of Hong Kong stocks is close to the high point of 2021. As of the end of the second quarter, the proportion of actively biased stock funds' allocations in Hong Kong stocks is 11.5%.

Both domestic and foreign funds are pouring in! Is the reversal of Hong Kong stocks coming?

Multiple positive factors help boost the decisive counterattack of Hong Kong stocks, and southbound funds may become more active in the future. Institutions point out that since the opening of the mutual market access mechanism, mainland funds have continuously flowed into Hong Kong stocks, enriching the diversity of investors and reducing the dominance of foreign capital over Hong Kong stocks. Currently, the allocation of foreign capital positions in Hong Kong stocks may be relatively sufficient, while the proportion of domestic capital holdings (including Chinese intermediaries and the Hong Kong Stock Connect) continues to rise. Under the rearrangement of domestic capital dominance, it may attract continuous inflow of southbound funds.

In addition, foreign capital has frequently sent out bullish signals to return to Hong Kong stocks. Wind data shows that as of September 26, calculated based on the number of holdings by international intermediaries, there are a total of 2632 international intermediary institutions holding Hong Kong stocks in the entire market. In the past week, 1001 foreign institutions bought Hong Kong stocks, accounting for approximately 38.03%. In early September this year, the foreign giant Allianz Fund established its first public offering product targeting the Chinese market, with Hong Kong stocks chosen as an important strategic direction.

CITIC Securities pointed out that the rate cut by the Fed and the combination of policies will significantly boost investor confidence in the Hong Kong stock market, and also help foreign capital and local funds in Hong Kong to return to the Hong Kong stock market. In addition, after nearly two weeks of valuation repair, the current Hang Seng Composite Index, Hang Seng Index, and Hang Seng Tech Index valuations are still at historical lows, with dynamic PEs of 8.9/8.7/14.0 times respectively, at the 11.1%/11.5%/6.9% lower historical percentiles since 2015.

Looking at different industries, the PE valuations of sectors such as optional consumption, necessary consumption, information technology, and medical care are currently at relatively low historical percentiles, at 0.5%/3.1%/10.3%/10.3% respectively; while the real estate construction and financial sectors' PB valuations are also relatively low, at 5.2% and 8.7% respectively, still having significant upside potential.

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