Source: Brokerage China
Author: Peili Rui

According to Wind data, as of March 14, the net inflow of southbound funds has exceeded 370 billion HKD this year, which is equivalent to over 0.2 billion HKD in real cash flowing south every hour. The proportion of transactions from southbound funds has climbed to 58% this year. A public fund manager stated that Hong Kong stocks are gradually transforming from an offshore market to a semi-offshore market, and the pricing power system of Chinese assets is undergoing a reshaping.

Funds are aggressively taking stakes in multiple Hong Kong stocks.

Latest data from the Hong Kong Stock Exchange shows that on March 11, Ruifeng Fund increased its stake at a price of 35.4644 HKD per share.$GUSHENGTANG (02273.HK)$It purchased 2.1453 million shares, involving a total amount of approximately 76.0818 million HKD.

It is worth mentioning that this is already the third time Ruiyuan Fund has increased its shareholding in Guosheng Hall this year. According to Hong Kong Stock Exchange data, previously, Ruiyuan Fund had also increased its shareholding in Guosheng Hall by 0.7534 million shares and 0.41 million shares on February 21 and February 26, respectively, with the shareholding ratio exceeding 5% on February 21, achieving a stock takeover. After three increases, Ruiyuan Fund holds a total of 17.8936 million shares of Guosheng Hall, with a shareholding value of approximately 0.675 billion Hong Kong dollars, and the shareholding ratio has increased from 5.01% to 7.45%.

In addition to Ruiyuan Fund, recently, the public fund giant E Fund has also been frequently "sweep buying" in the Hong Kong stock market.

For example, on March 5, E Fund increased its holdings by 0.1628 million shares at an average price of 13.8914 Hong Kong dollars per share, involving approximately 2.2615 million Hong Kong dollars.$JOINN (06127.HK)$Before this, E Fund had increased its shareholding in Joinn Laboratories by 0.0443 million shares on February 13, achieving a shareholding ratio of 5.02% and triggering a stock takeover. With this increase, E Fund's latest shareholding in Joinn Laboratories reached 7.2075 million shares, with a shareholding amount of approximately 0.111 billion Hong Kong dollars, and the shareholding ratio increased from 5.02% to 6.06%.

In addition, E Fund also staged a stock takeover in November last year.$DONGYUE GROUP (00189.HK)$Additionally, E Fund increased its holdings twice this year. On January 9, E Fund increased its holdings in DONGYUE GROUP by 2.761 million shares for 23.1648 million Hong Kong dollars. Although it reduced its holdings by 2.004 million shares on February 19, it then increased its holdings again by 2.416 million shares on February 26, with the latest shareholding amounting to 0.122 billion shares, a shareholding value of 1.134 billion Hong Kong dollars, and a shareholding ratio of 7.06%.

Billion-yuan private equity funds have recently been scrambling to buy Hong Kong stocks. For example, Ningquan Asset increased its shareholding on January 8, February 5, and February 13.$XINTE ENERGY (01799.HK)$0.362 million shares, 0.328 million shares, and 1.474 million shares, with the latest shareholding ratio already reaching 14.13%. In addition, Ningquan Asset also increased its holdings by 3.27 million shares on February 11.$CHINA VANKE (02202.HK)$On February 13, it increased by 6.066 million shares.$XINYI ENERGY (03868.HK)$On February 14, it increased by 4.721 million shares.$DATANG RENEW (01798.HK)$0.9 million shares.$CG SERVICES (06098.HK)$The latest shareholding ratios have all exceeded 5%.

In addition to public and private equity funds, recently, many institutional investors such as insurance funds and REITs have been increasing their holdings in Hong Kong stocks, with domestic capital crossing the river to grab shares becoming a trend. For example, Ping An Insurance Group increased its holdings on March 11.$ABC (01288.HK)$Increased holdings on March 6 and February 27.$CM BANK (03968.HK)$Increased holdings on March 5 and February 20.$PSBC (01658.HK)$, increased shareholding on February 28.$ABC (01288.HK)$。

The two ends of the 'barbell' are the most attractive for investment.

From the above 'bulk buying' trend, the majority of symbols targeted by domestic capital are distributed at both ends of the 'barbell' - Technology and Dividend, among which the technology direction mainly focuses on the two main lines of 'AI Medical' and 'AI + Robotics', while the dividend direction is concentrated in the Electrical Utilities and Banks sectors.

For example, Gushengtang and Joinn Laboratories are both important concept stocks in AI Medical. Gushengtang previously announced that the company has connected with DeepSeek, creating an 'AI avatar' of renowned doctors based on real, vast data sources, and recently announced the introduction of foreign academicians from the European Academy of Sciences and Sun Maosong, executive vice president of the Tsinghua University AI Research Institute, as the group's senior AI advisor, aimed at promoting the deep integration of Traditional Chinese Medicine and modern technology through the expertise of top AI specialists; meanwhile, Joinn Laboratories also announced a partnership with Shengtong Intelligent to develop a digital pathology auxiliary analysis system, integrating comprehensive AI-assisted diagnosis technology, broadening the application scenarios of AI technology in the CRO field.

The DONGYUE GROUP, which E Fund has increased shareholding in, belongs to the humanoid robotics industry chain. The company primarily engages in the research and production of new eco-friendly refrigerants, fluorine-containing polymer materials, silicone materials, and chlor-alkali ion membranes, and is the largest global supplier of PTFE (polytetrafluoroethylene) materials, which are also a key material in the humanoid robotics industry.

In addition to Technology Assets, the other end of the "dumbbell"—Dividend Assets—are also highly favored. For example, CG SERVICES, XINYI ENERGY, and DATANG RENEW, which were increased by Ningquan Assets, and Agricultural Bank Of China and Postal Savings Bank Of China, which were added by Ping An Insurance Group, all have a TTM dividend yield above 5%.

With domestic capital increasing its positions, most of the aforementioned Hong Kong stocks have already seen a wave of market trends this year. According to Wind data, since the Spring Festival (from February 3 to March 14), Joinn Laboratories has surged 82.25% this year, Gushengtang has risen 38.35%, and CG SERVICES and XINYI ENERGY have both increased by more than 20% in the year.

The strategy team at Industrial Securities stated that southbound capital is one of the main forces driving up Hong Kong stocks this time. After the Spring Festival holiday, "Technology + Dividends" became the primary inflow areas for southbound capital. On one hand, the AI sector has become a significant consensus among southbound capital and foreign capital in the current market surge, with southbound capital significantly reallocating to "AI+" sectors represented by Specialty Retail, Autos, Biotechnology, Software Services, Telecommunications, and Semiconductors; on the other hand, southbound capital continues to flow into value dividend sectors represented by Banks, Public Utilities, and Insurance.

Zhang Jialu, head of the International Business Department of Ruifeng Fund and manager of the Ruifeng Hong Kong Stock Connect Core Value Mixed Fund, stated that under the leadership of AI technologies such as DeepSeek, the market style in Hong Kong stocks has begun to change to some extent, and investors are willing to invest confidence in future growth potential. This shift is reflected not only in technology stocks but also influences the entire valuation center of the Hong Kong stock market. The continuous inflow of southbound capital has provided solid support for the Hong Kong stock market and extra confidence.

Domestic capital regains pricing power over Hong Kong stocks.

The "Hong Kong stock offensive" represented by public funds marks a new phase in the competition for China's asset pricing power. Once upon a time, the slogan "cross the Hong Kong River to seize pricing power" was full of aspirations, but now, this aspiration is no longer a dream.

On one hand, southbound funds are flowing into the Hong Kong stock market at an astonishing speed. Wind data shows that as of March 14, the net buying amount of southbound capital has exceeded 370 billion Hong Kong dollars, more than five times that of the same period last year; among them, the net inflow for February alone reached 152.778 billion Hong Kong dollars, setting a new high since January 2021; on March 10, the net buying amount of southbound capital in a single day reached 29.626 billion Hong Kong dollars, setting a new high since the opening of the connect mechanism.

On the other hand, the trading proportion of southbound capital is gradually rising. On February 17, the trading amount of southbound funds reached 200.671 billion Hong Kong dollars, accounting for 50.13% of the day's Hang Seng Index trading volume, breaking the 50% barrier; over a longer period, as of March 15, the total trading volume of southbound funds this year has already exceeded 5 trillion Hong Kong dollars, and its share of the total trading volume in Hong Kong stocks has risen to 58%.

Xingquan's Hong Kong-Shenzhen stock connection two-year hold fund manager Chen Cong stated that the current market situation is noticeably different compared to the "Southern move to seize pricing power" in 2020:

On one hand, the proportion of mainland investors' marginal holdings in the entire Hong Kong stock market is sufficiently high, to the point that it has gradually become a stock market for domestic capital. In recent years, many institutional investors have been more actively participating in Hong Kong stock investments. The increase in domestic capital's investment share in the Hong Kong stock market will alter the market's attributes to some extent, possibly transforming it from a purely offshore market to a semi-offshore market, and future fluctuations and downward risks may be slightly better than in the past.

On the other hand, the pricing aesthetic of the Hong Kong stock market is increasingly resembling that of the A-shares to some extent. For example, some purely growth-oriented symbols would unlikely have the current stock price in a purely foreign capital system, but because domestic capital values high growth potential, these companies are expected to maintain a relatively high valuation for a considerable period. This also proves that at least for a while, part of the pricing power in the Hong Kong stock market can be controlled by domestic capital.

Jin Meiqiao, a fund manager at the hundred-billion private equity firm Jinglin, stated in a letter to investors that "southward capital continues to flow in, and the pricing power of domestic capital in the Hong Kong stock market and the discourse power of southward capital are constantly rising. If the southward capital of 800 billion Hong Kong dollars continues for 2-3 years, the pricing power of Hong Kong stocks will inevitably be in the hands of mainland capital." Wind data shows that in 2024, the net purchase of southward capital reached 8,078.69 million Hong Kong dollars, while the net purchase of less than 3 months in 2025 has already exceeded 370 billion Hong Kong dollars.

Chen Ximiao, a strategy analyst at GTJA, stated that in this round of the Hong Kong stock market's rise, the characteristics of domestic capital leading and foreign capital following are evident, and investors need to pay attention to the reshaping of the pricing power system in the Hong Kong stock market in 2025. With significant increases in domestic capital's allocation to the Hong Kong stock market, the pricing power system in 2025 will undergo systematic changes compared to the past.

"Diffusion trend" is worth looking forward to.

It is worth mentioning that the current round of revaluation of Chinese assets led by domestic capital is still a relatively extreme structural trend, with the upward momentum in the Hong Kong stock market mainly concentrated in a few sectors such as Technology and Medical Care.

Wind data shows that as of March 14, only this year has seen...$Hang Seng TECH Index (800700.HK)$Hang Seng Biotechnology Index,$Hang Seng Healthcare Index (800804.HK)$outperform.$Hang Seng Index (800000.HK)$The rolling 10-day trading volume of the Hang Seng TECH Index once broke through 40%, setting a historic high, while the capital participation from other industries has been squeezed.

Tianfeng pointed out in a research report that if other sectors follow the technology rebound, it indicates that investors are optimistic about the overall Hong Kong stock market. The logic underlying this broad increase may be attributed to the following two points: First, on the numerator side, market expectations for the earnings prospects of Hong Kong stocks have improved, as can be seen by the continued upward revision of the Hang Seng Index's forward EPS since the beginning of this year, with quarter-on-quarter growth rate corresponding to an upward trend, and signs of stabilization in the China Economic Surprise Index; Second, on the denominator side, global allocation funds are returning to China, believing in the process of economic reform and technology value reassessment in China. With the domestic economy stabilizing and the effects of technological innovation gradually becoming apparent, foreign capital is expected to gradually return to the Chinese market.

According to Zhang Jialu, although some international funds have already entered the Hong Kong stock market, there is still much capital that may be waiting for further improvement in China's economic fundamentals. They will pay more attention to the changes in specific indicators, such as the stabilization of the real estate sector and improvements in PPI, as well as the changes in the ASP of Hong Kong consumer goods companies. She stated that with breakthroughs in AI technology, improvements in the policy environment, and the inflow of funds, the Hong Kong market still has further upside potential, especially in the fields of consumer and medical care that have not yet fully started.

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Editor/Jeffy