Source: Caixin.

Author: Wu Yuqi

How are foreign movements during the Hong Kong stock market's fluctuating correction?

Since the correction began on October 8, the once rapidly rebounding Hong Kong stocks have given back nearly sixty percent of the gains from this round of rebound (September 24 to October 7) by the close on December 2.

What are the strategies of foreign institutions that had previously bought a lot of Hong Kong stocks? Cai Lian She reporters found that as the Hong Kong stock market corrected, foreign institutions were also gradually selling off some Hong Kong stocks to stop losses. If the data is based on the number of shares held by international intermediaries, from October 8 to November 29, the total number of shares held by international intermediaries decreased by 17.005 billion shares. Institutions believe that foreign funds are flowing out of Hong Kong stocks and other emerging markets due to risk aversion.

Although the overall number of shares held by foreign investors in Hong Kong stocks has decreased, many Hong Kong stocks have received increased foreign investment within the correction range, such as $ARTA TECHFIN (00279.HK)$ 、 $DIGITAL DOMAIN (00547.HK)$ 、  $MOBVOI (02438.HK)$ According to documents filed with the U.S. Securities and Exchange Commission (SEC), some of the most prominent actions Third Point took in the second quarter, respectively, were to establish positions, shareholding of and more.

While foreign capital is accelerating its sell-off of Hong Kong stocks, the southbound funds have shown a completely different operation, with purchases reaching 125.02 billion HKD in November, setting a new scale high in nearly three years.

As Hong Kong stocks adjust, there is a reduction in overall foreign holdings.

According to Wind data, based on the number of institutional holdings from international intermediaries, as of the market close on November 29, there are 2,635 Hong Kong stocks with institutional holdings from international intermediaries. During the adjustment period (from October 8 to December 2), 1,453 foreign institutions sold Hong Kong stocks, accounting for more than half.

Specifically, bj energy intl was sold the most by foreign institutions. On October 8, the holding was 9.303 billion shares, and by November 29, it had dropped to only 0.929 billion shares, with more than 8.373 billion shares sold. $CCB (00939.HK)$ Also significantly sold by foreign institutions, during the correction period, institutional holdings of international intermediaries decreased by 1.716 billion shares, in addition to other reductions. $GCL TECH (03800.HK)$ 、 $TRAD CHI MED (00570.HK)$ 、 $ICBC (01398.HK)$ 、 $BANK OF CHINA (03988.HK)$ During the pullback period, more than 1 billion shares were sold by foreign capital.

From the stock price trend, the aforementioned stocks that were sold off more frequently. $BJ ENERGY I-NEW (00686.HK)$ fell by 45.03% during the pullback period. $CCB (00939.HK)$ It decreased by 5.34%. $GCL TECH (03800.HK)$ 、 $TRAD CHI MED (00570.HK)$ Down by 10.49% and 50.11% respectively.

Some Hong Kong stocks still received increased holdings from foreign institutions during the pullback period. For example, arta techfin, as of October 8, foreign institutions held 5.097 billion shares of this stock, and by November 29, holdings reached 13.917 billion shares, with an inflow of 8.82 billion shares. Additionally, $DIGITAL DOMAIN (00547.HK)$ 、 $MOBVOI (02438.HK)$ During the pullback period, foreign capital bought 0.915 billion shares and 0.577 billion shares of these stocks. A total of 35 Hong Kong stocks saw an increase in foreign institutional holdings of over 0.1 billion shares.

In terms of stock price trends, foreign capital bought over 10 billion shares during the pullback. $ARTA TECHFIN (00279.HK)$ During this range, it also dropped by 25.45%. $DIGITAL DOMAIN (00547.HK)$ The range change was 0%. $MOBVOI (02438.HK)$ It dropped by 60.39%.

There is a significant divergence between domestic and foreign capital regarding Hong Kong stocks.

From the perspective of index trends, compared to A-shares, Hong Kong stocks have fallen nearly 60% from their peak. However, in stark contrast to the outflow of foreign capital, domestic capital is gradually increasing its position during the correction of Hong Kong stocks.

Data statistics indicate that on December 2, southbound funds significantly purchased Hong Kong stocks, with a net purchase amount reaching 19.654 billion HKD for that single day, ranking third for single-day net purchases for the year. As of that day, southbound funds have net purchased Hong Kong stocks for 13 consecutive trading days, with a total amount of nearly 93 billion HKD.

In November, southbound funds purchased 125.02 billion HKD worth of Hong Kong stocks, reaching the highest scale in nearly three years. Looking at a longer time frame, year to date, southbound funds have net purchased over 730 billion HKD of Hong Kong stocks, setting a historical high for the same period. At the same time, southbound funds have net purchased Hong Kong stocks for 18 consecutive months.

Although domestic and foreign capital's layouts for Hong Kong stocks are different, some institutions remain bullish on the Hong Kong stock market.

Galaxy Securities believes that currently, USA's inflation levels remain persistently high, and market expectations that a series of policies implemented after Trump's administration will raise the risk of re-inflation in the USA. The pace of interest rate cuts by the Federal Reserve may slow down, putting certain pressure on the liquidity of the Hong Kong stock market. However, the valuation of Hong Kong stocks is at a relatively low level, and profitability demonstrates certain resilience. With the incremental fiscal policy ramping up and the domestic economy gradually recovering, the mid to long-term allocation value of Hong Kong stocks is quite high.

China International Capital Corporation's research reports also point out that compared to A-shares, Hong Kong stocks have recently corrected more from their peaks. Firstly, this is because Hong Kong stocks are more sensitive to external disturbances, particularly the "Trump trade". Secondly, the mood of foreign capital fluctuates more violently than that of domestic investors. During the correction process, overseas capital has exited again, especially as the proportion of actively managed funds underweighting Chinese stocks has further deepened, which illustrates this point.

In the short term, the Hang Seng Index has support at 19,000 points, but the upward potential remains limited while external uncertainties remain unresolved. Therefore, the market is likely to remain stagnant around this level in the short term. 'Should there be significant volatility, this could actually provide a better buying opportunity. After all, compared to the current 'stagnant' level, a sufficiently cheap buying point could hedge against risk disturbances, presenting an opportunity born of decline.' stated China International Capital Corporation.

Editor/Rocky