Although on November 6, the Hang Seng Index fell by 2.23%, with the U.S. election outcome finalized, the willingness of Southbound funds to flow into Hong Kong stocks has strengthened again. On November 6, the net inflow of Southbound funds reached 21.487 billion Hong Kong dollars, hitting a new historic high.

Since October, the Hong Kong dollar exchange rate has been hovering around 7.774. In contrast to the loose inflow of Hong Kong dollars, on November 6, the RMB to USD exchange rate plummeted significantly, with the offshore RMB to USD successively breaking through multiple thresholds, dropping below the 7.19 mark at one point. The U.S. Dollar Index also broke through the 105 level.

Net inflow of funds from the South reached the second highest level in history

On November 6, the net inflow of Southbound funds reached 21.487 billion Hong Kong dollars, setting a new record for the highest single-day net inflow. On January 18, 2021, Southbound funds had a net inflow of 22.971 billion Hong Kong dollars, setting a new high for the highest single-day net inflow in history.

On the previous trading day, November 5, the scale of net inflow of Southbound funds approached nearly 10 billion Hong Kong dollars. The continuous large-scale inflow of Southbound funds indicates a renewed willingness to invest in Hong Kong stocks before and after the U.S. elections, reflecting the gradual recovery of confidence from mainland funds in Hong Kong stocks in the recent period.

On that day, the Hang Seng Index fell by 2.23%, while the Hang Seng Tech Index dropped by 2.54%. In terms of sectors, building materials, smart home, blockchain technology, nuclear power, BYD concept, CXO concept, and other sectors rose against the trend; while autos, semiconductors, building products, pharmaceuticals, venture capital concepts, JD.com concept, mainland insurance companies, self-driving cars, calcium titanium batteries, mainland real estate stocks, petroleum stocks, solar energy and other sectors led the decline. In individual stocks, Tracker Fund of Hong Kong, Hang Seng H-Share Index ETF, Ping An Insurance had net purchases of 8.944 billion Hong Kong dollars, 1.265 billion Hong Kong dollars, 0.79 billion Hong Kong dollars respectively; Semiconductor Manufacturing International Corporation led in net sales, with an amount of 0.027 billion Hong Kong dollars.

Currently, the Hong Kong Interbank Offered Rate (HIBOR), which reflects the cost of funds for Hong Kong banks, has generally fallen significantly, indicating relatively loose liquidity. On November 6, the 3-month HIBOR has dropped for the fourth consecutive time, quoting at 4.227%, hitting the lowest point since the 4.51% in early October. The overnight HIBOR has also dropped from its high on September 30 of 6.3926% to 3.7435%.

The RMB exchange rate has fluctuated significantly.

Of note, as of October, the Hong Kong dollar exchange rate has been maintained near 7.774. Generally speaking, when the Hong Kong dollar exchange rate is around 7.75 or within the range of 7.75 to 7.8, it indicates inflow of foreign capital into Hong Kong, leading the Hong Kong stock market into a period of liquidity easing, with the Hang Seng index often showing an upward trend.

In contrast to the eased inflow of Hong Kong dollar exchange rate, on November 6th, the RMB to USD exchange rate plummeted significantly, with the offshore RMB against the USD successively breaking through multiple thresholds, dropping below the key level of 7.19 at one point, while the onshore RMB to USD also briefly fell below the 7.16 mark. On that day, the People's Bank of China authorized the China Foreign Exchange Trading Center to announce a central parity rate of 7.0993 for the RMB to USD, raising it by 23 basis points. The previous trading day's central parity rate was 7.1016.

Huatai Securities Research indicates that moderate depreciation of the exchange rate has historically been one of the main policy measures adopted by countries facing tariff impositions when dealing with trade disputes. It helps offset the actual "appreciation" pressure brought about by tariffs on the exchange rate, reducing tax losses for export enterprises and global inflation pressures. Imposing additional tariffs by the U.S. to some extent equates to USD depreciation, as countries subjected to tariffs often devalue their currencies against the USD to counter some of the impacts. Looking back to the 1930s when the U.S. raised its average tariff rate from 40% to around 60%, countries globally engaged in large-scale currency devaluations in response.

Currently, the USD index has risen above 105, while U.S. Treasuries are being priced around the election results. In the past two weeks, U.S. bond yields have rebounded across the board, with significant rebounds in the medium to long term, presenting a steep bearish trend in the U.S. bond yield curve. Nanhua Futures believes that the election victory of Trump in the U.S. brings more of the "strong dollar" effect, putting certain depreciation pressure on the RMB.

Editor/rice