Source: Brokerage China
Author: Wu Qi

On March 12, the Hong Kong stock market opened high and then declined, with the Hang Seng Index experiencing four consecutive small declines. Despite recent fluctuations in the US stock market causing volatility in the global capital markets, the Hang Seng TECH Index and the Hang Seng Index have still increased by 30.82% and 17.65% this year, making them the best-performing markets in the global capital market.

On that day, southbound funds net purchased Hong Kong stocks amounting to 26.211 billion Hong Kong dollars, marking the fourth time this year that southbound funds net bought over 20 billion Hong Kong dollars in a single day. Just recently, on March 10, southbound funds net purchased Hong Kong stocks amounting to 29.626 billion Hong Kong dollars in a single day, setting a record high since the launch of the mutual access mechanism.

Taking advantage of the adjustment in the Hong Kong stock market, southbound funds continue to increase their positions, consistently pouring into the Hong Kong stock market. The resolute attitude of southbound funds in buying Hong Kong stocks has surprised many market participants, contrasting sharply with the phenomenon in recent years where funds have rushed out with even a slight rebound in the Hong Kong stock market.

It is noteworthy that the funds that had previously net sold Hong Kong stock-themed ETFs have returned and started to re-embrace Hong Kong stock-themed ETFs.

Since the beginning of this year, southbound funds have significantly net bought over 360 billion Hong Kong dollars in Hong Kong stocks.

Recently, the Hong Kong stock market has seen a continuous inflow of Southbound funds, and this trend has not changed due to the high-level fluctuations and adjustments in the Hong Kong stock market; instead, Southbound funds are constantly increasing their buying in Hong Kong stocks. Market observers even joked that Southbound funds are showing an impatient state.

On March 12, the net buying amount of Southbound funds exceeded 20 billion Hong Kong dollars again, reaching 26.211 billion Hong Kong dollars, indicating strong interest from Mainland funds in the Hong Kong stock market.

This trend has intensified, as since 2025, Southbound funds have repeatedly seen a single-day net buying exceeding 20 billion Hong Kong dollars, such as on February 18, February 25, and March 10. Notably, the single-day net buying on March 10 set a historical high since the launch of the Shanghai-Shenzhen-Hong Kong Stock Connect, reaching 29.626 billion Hong Kong dollars.

Overall, based on the accumulated net buying of over 800 billion Hong Kong dollars in 2024, Southbound funds have accelerated their inflow into Hong Kong stocks this year. In February 2025, the monthly net buying amount of Southbound funds reached as high as 152.778 billion Hong Kong dollars, setting the largest single-month net buying scale since January 2021. From the beginning of the year to now, the cumulative net inflow of Southbound funds has exceeded 360 billion Hong Kong dollars, surpassing the total amount for the entire year of 2023, showing strong confidence in the Hong Kong stock market.

Jacqueline Luo, the manager of the Invesco Hong Kong Stock Connect Mixed Fund, analyzed that since mid-February, long-term stable foreign funds have begun to show significant inflow, mainly focusing on index blue chips, with the market expanding from Technology to Consumer, Insurance, and other Sectors. However, compared to the inflow of long-term foreign funds over the past three years, this round of return is only a phase of adjustment.

It is worth noting that the funds that had continuously net sold Hong Kong-themed ETFs previously have returned and begun to embrace Hong Kong-themed ETFs again. ETF funds always show a behavior of 'selling more as prices rise.' Against the backdrop of sustained surges in Hong Kong-themed ETFs, many funds have chosen to cash out, continuously redeeming ETFs.

Since the end of last year, most Hong Kong stock themed ETFs have been continuously shrinking in size. Taking the largest Hang Seng TECH Index ETF as an example, this ETF has risen over 30% this year, and the latest net value has continuously recovered from previous declines, rising to the position it had at the end of 2021. However, the share of this ETF reached a historical high at the end of 2023, and since then, along with the rebound of the ETF's net value, the shares have dropped significantly, with a decline of more than 35% from the highest point.

Another Hang Seng Internet Technology Industry ETF has seen its latest shares almost reach half of the high shares from April 2024, and in less than a year, the share size of this ETF is nearly halved. Overall, this year, the scale tracking Hong Kong-themed ETFs has experienced a net outflow of funds exceeding 30 billion yuan at one point.

However, the trend of capital fleeing from Hong Kong's thematic ETFs is showing signs of reversal. On March 10, Hong Kong's thematic ETFs saw a net inflow of 1.311 billion yuan. On March 11, Hong Kong's thematic ETFs received another net inflow of 0.129 billion yuan. Capital has continuously net purchased Hong Kong's thematic ETFs for two consecutive days. This is also considered a Bullish Signal by the market.

Additionally, besides passive index funds, active funds may have a more determined stance on investing in Hong Kong stocks. By the end of the fourth quarter of 2024, the holdings of Hong Kong stocks by public funds accounted for 30.5% of their stock investment market, reaching a new high since 2019.

Multiple factors are driving capital southward, with Chinese Institutions gradually gaining pricing power.

Although the Hang Seng TECH Index and the Hang Seng Index have risen by 30.82% and 17.65% respectively this year, the structural characteristics of the Hong Kong stock market are quite obvious.

Data from Wind shows that as of recent, among more than 540 Hong Kong Stock Connect symbols, only 66 stocks outperformed the Hang Seng TECH Index, and less than a quarter of the stocks outperformed the Hang Seng Index, with Technology Consumer and AI Medical leading, while traditional sectors lag behind.

Guo Lin, the manager of Invesco Great Wall Innovation Three-Year Open-Ended Mixed Fund, stated that the launch of the DeepSeek-R1 model is an important catalyst. "Low-cost, open-source AI large models have lowered the technological application threshold, prompting the market to reassess the application prospects of China's AI industry." She analyzed that in this round of trading centered around the AI+ logic, Medical Care, Software Internet, and Technology Semiconductors have become the main flow of capital. Data from Wind shows that technology component stocks in the Hang Seng Index contributed the majority of gains this round, highlighting the concentrated allocation of capital to core technology assets.

According to analysis by Huaan Fund, the emergence of DeepSeek has driven a reshaping of valuations in China's AI Industry Chain, and since Hong Kong stocks have a higher AI content, they have significantly outperformed A-shares recently, leading the Global market. Coupled with the overall valuation cost-effectiveness of Hong Kong stocks, domestic and foreign capital is accelerating its inflow into Hong Kong stocks, also driving the rise of sectors like Technology and beyond.

Xing Cheng, the manager of the Hang Seng Qianhai Hong Kong Stock Connect Selected Mixed Fund, stated that due to the release of DeepSeek and Alibaba's large model, global attention on the development of the technology industry has shifted to China, leading to substantial gains in the Hang Seng TECH, particularly in the fields of AI, Semiconductors, and Internet.

In this round of the market, Guo Lin believes that optimists have seen the potential for greater valuation reassessment, capital reallocation, improvement in corporate innovation capabilities and willingness for capital expenditure under the aforementioned opportunities, and even the possibility of an overall macro narrative shift. Meanwhile, policy levels and corporate earnings report data have also injected confidence into the market. Guo Lin mentioned that the private enterprise entrepreneur symposium has released positive signals for stabilizing expectations, combined with the outperformance of earnings reports from leading companies like Alibaba, the expansion of capital expenditure has further reinforced the market's optimistic sentiment.

Regarding the series of narratives around the revaluation of Chinese assets triggered by DeepSeek, Xing Cheng believes that its sustainability depends on whether the market can see evidence of continuous progress and breakthroughs in domestic AI and Technology industries, to validate the expectation of a simultaneous advance in technology and productivity competition between China and the USA. This may be an important foundational assumption supporting the narrative of Chinese asset revaluation.

Institutions: Cautious in the short term, optimistic in the long term.

As the US stock market experiences significant volatility, will the Hong Kong stock market, which has already accumulated significant gains, be dragged down? Institutions have provided varying opinions.

"Although some companies have seen excessive price increases in the short term, and the fundamentals of some companies are not stable enough, there is a risk of correction," Luo Jiaming pointed out. The valuation of large leading enterprises still has significant space compared to their international mainstream peers. As China's domestic economy gradually recovers this year, the fundamentals and profitability of these large enterprises are expected to continue to improve. Therefore, even if a correction occurs in the short term, from a medium to long-term perspective, the current valuation levels of Hong Kong stocks remain within a reasonable range, allowing for an optimistic outlook on future performance.

Xing Cheng indicated that due to increased uncertainty in the US economy and the adjustment period of the US stock market, it is expected that Hong Kong stocks will continue to attract regional allocation funds and medium to long-term capital inflows, and the medium to long-term market may trend upward among fluctuations.

According to Guo Lin, the surge in the Hong Kong stock Technology sector in this round is driven by breakthroughs in AI technology, a warming of policy confidence, and the outperformance of leading companies' results, and the market may present a structural trend focused on those with fundamental and industry trends in the future.

Looking ahead at the future trend of Hong Kong stocks, Guo Lin cautiously expresses the need to be wary of profit-taking after emotional overextension, as the short-term market may face volatility. Guo Lin points out that from the perspective of industry structure prosperity and valuation comparison, after the current rebound repair, the Hong Kong stock market still holds certain advantages compared to the A-shares, and the short-term AH price difference has room for narrowing; from a medium-term perspective, it is necessary to observe changes in the valuation and prosperity of advantageous industries in the Hong Kong stock market, which is expected to be primarily a structural trend. For long-term funds, it is essential to focus on the visibility of profitability realization in the AI industry, overall macroeconomic conditions, and total policy situations.

According to Bosera Fund analysis, the short-term digestion of trading enthusiasm in Hong Kong stocks may lead to volatility, while in the medium term, Hong Kong stocks will still benefit from the stabilization of the domestic economy and the easing of overseas liquidity in the first half of the year.

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Editor/Jeffy