On September 27, the Hong Kong stock market opened higher again, with policy expectations continuing to fuel market sentiment. As of the morning close, $Hang Seng Index (800000.HK)$rising by 3.50% to 20621.90 points, hitting a new high for the year; the Hang Seng Tech Index rose by 6.59% to 4487 points. The strong trend seems to attract funds, with many market participants analyzing the logic behind the surge.

Industry insiders analyze two main factors:

On one hand, the recent trend of RMB appreciation is becoming more pronounced. Offshore RMB has surpassed 7 recently, indicating a gradual trend of appreciation. This phenomenon will undoubtedly attract investment in RMB assets and bode well for the relatively sluggish Hong Kong stocks, attracting a large influx of foreign capital.

On the other hand, China's series of loose monetary policies have enhanced foreign investors' strong expectations of economic recovery. Changes in fundamentals are often important indicators of foreign capital inflows and outflows.

From a data perspective, foreign capital has been buying Hong Kong stocks frantically in the past week.

Foreign capital is accelerating its inflow into the Hong Kong stock market.

Previously, data showed that over the past 6 years, the proportion of foreign capital holding Hong Kong stocks has been decreasing year by year, from 51% in 2018 to 33% in June 2024. Meanwhile, the proportion of domestic capital (including Chinese intermediaries and Hong Kong stock connects) has increased from 19% in 2018 to 34%, while locally sourced funds in Hong Kong have maintained a proportion of holdings in the range of 30% to 35%. However, the recent situation of foreign capital flowing into Hong Kong stocks seems to have changed, with many market participants exclaiming, "Hong Kong stocks have reached the next level!"

According to Wind data, as of September 26, the total number of Hong Kong stocks held by international intermediary institutions was 2632, with 1001 foreign institutions buying Hong Kong stocks in the past week, accounting for approximately 38.03%.

Among them, the foreign institutions bought the most in the past week $CCB (00939.HK)$ , buying approximately 526.0399 million shares, with the latest holdings reaching 58.55 billion shares. The proportion of holdings by international intermediaries is 24.34%.$SENSETIME-W (00020.HK)$Foreign institutions ranked second in terms of purchases in the past week, buying approximately 340.4607 million shares, with the latest holdings totaling 7.309 billion shares. The proportion of holdings by international intermediaries is approximately 21.14%. In addition, there is$CHINA TOWER (00788.HK)$,$UNI-BIO GROUP (00690.HK)$Industrial and Commercial Bank of China and other foreign investors bought more shares in the past week, with 337.8232 million shares, 301.039 million shares, 284.1731 million shares respectively.

From the above data, it is not difficult to see that the high-dividend sector led by bank stocks has recently gained favor from international funds. In addition to the two bank stocks mentioned earlier, Bank of China saw foreign investors buying 241.2585 million shares in the past week.$ABC (01288.HK)$and sold 168.2569 million shares.$MINSHENG BANK (01988.HK)$The buy-in volume was 45.2948 million shares.

Looking at the proportion of holdings by international intermediary institutions, the one with the largest increase in the past week is$JIADING INTL GP (08153.HK)$, a week ago the proportion of holdings by international intermediary institutions was 13.69%, and the latest proportion has risen to 52.69%,$FOURTH PARADIGM (06682.HK)$with foreign ownership also increasing from 5.07% to 17.17%. The Hong Kong stock with the highest foreign ownership proportion at present is$BIDU-SW (09888.HK)$, at 98.87%, and also$TINGYI (00322.HK)$,$REGINA MIRACLE (02199.HK)$,$IMPRO PRECISION (01286.HK)$,$AIA (01299.HK)$,$NATURAL BEAUTY (00157.HK)$,$U-PRESID CHINA (00220.HK)$14 Hong Kong-listed companies have foreign ownership exceeding 90%.

Foreign funds flowing into the Hong Kong stock market have been foreshadowed for some time. A research report from Citic Securities earlier this month pointed out that from May 20 to August 6, due to frequent external disturbances and internal economic growth pressures, Hong Kong stocks once again fluctuated and fell. However, considering multiple indicators, Hong Kong stocks have once again shown clear bottoming characteristics. Factors such as turnover, rapid valuation decline; significant increases in short selling ratios, AH premiums, dividend yields all reflect that Hong Kong stock investor sentiment has returned to historic lows. At the same time, they have also observed a marginal change in foreign fund sentiment recently.

Since mid-August, foreign funds have once again shifted towards flowing into the Hong Kong stock market. From August 16 to August 23, Citic Securities estimated a net inflow of approximately 6/3.1/-3.8 billion Hong Kong dollars by Hong Kong Stock Connect, foreign intermediaries, and local intermediaries respectively. Amid the recent moderation in foreign fund sentiment, there is an increase in allocation towards sectors combining cyclical and high dividend features like banks, insurance, as well as undervalued growth sectors such as pharmaceuticals, internet services, etc.

Foreign institutions are bullish on the Hong Kong stock market.

From recent public statements by foreign institutions, many foreign institutions are bullish on the investment opportunities in the Hong Kong stock market.

Huang Jiacheng, Managing Director and Head of Fixed Income in the Asia-Pacific region at Invesco, stated that while China's monetary policy is not considered loose, it still provides some support. Since 2018, the government has been implementing measures to stabilize the market, which are ongoing. Both the A-share and Hong Kong stock markets have attracted a large amount of funds, demonstrating the attractiveness of high-quality assets to capital. It is worth noting that the listing on the Hong Kong Stock Exchange is continuously increasing, with relatively lower pricing in the Hong Kong stock market. The stock prices of A-shares are also very attractive, which will continue to attract investor attention.

Morgan Stanley expects that the performance of A-shares and Hong Kong stock markets will be roughly comparable. So far, these policy measures have been very focused on the A-share market; however, with the recent rate cuts by the Federal Reserve, there may be greater elasticity in liquidity in the Hong Kong market. In addition, despite the rate cut news, the onshore Renminbi is stabilizing/slightly appreciating.

Goldman Sachs Research Department also believes that the tactical rebound opportunity similar to the one in April this year may have arrived. The extent of the recovery in trading activity will depend on domestic policies, corporate earnings, external factors such as the U.S. presidential election, and others. Compared to the A-share market, due to stronger profit correction trends, more attractive absolute valuations and A/H premiums, more supportive southbound capital flows, and higher sensitivity to Fed actions during rate cuts, Goldman Sachs Research Department is more bullish on the Hong Kong stock market.

Editor/Rocky