Bank of China International released a strategy report indicating that the liquidity improvement in the Hong Kong financial market is favorable for the Hong Kong stock market. From 2025 until now, the Hong Kong stock market has recorded growth amidst volatility, with an average daily trading volume of HKD 240.9 billion as of June 3 this year, significantly higher than last year's HKD 110.4 billion and the HKD 131.8 billion for the full year of 2024. The Hang Seng TECH Index has risen by 16.15% this year. As of June 3, excluding the Energy Sector which fell by 2.58%, all sectors recorded positive returns, with the Medical, Materials, and Technology Sectors performing particularly well, rising by 37.18%, 27.31%, and 24.56% respectively.
The bank indicated that the liquidity improvement in the Hong Kong financial market is key to stabilizing the stock market. Despite recent rising geopolitical risks, the ample liquidity in the Hong Kong financial market helps stabilize the stock market and improve market sentiment. Since early May this year, the Hong Kong Monetary Authority has injected approximately HKD 131.8 billion into the banking system through Forex market operations, with the total balance of the banking sector increasing significantly from HKD 44.6 billion on May 2 to HKD 176.4 billion on June 3. Meanwhile, the Hong Kong Interbank Offered Rate (HIBOR) overnight rate plummeted from 4.22% on May 2 to 0.02% on June 3, indicating extremely abundant liquidity.
In addition, the Hong Kong IPO market has flourished driven by rising liquidity. According to WIND data, the total amount of IPO financing in the Hong Kong stock market from 2025 to now has reached HKD 77.36 billion, representing a year-on-year increase of 701.4%. The A/H share premium has narrowed, with the Hang Seng A/H share premium index dropping from 143 on December 31, 2024, to 132.5 on June 3, 2025, equivalent to an average premium of 32.5% for A shares over H shares.
Bank of China International stated that southbound trading plays a critical role in the Hong Kong stock market, recording steady net inflows in recent years, which is vital for stabilizing the stock market. As of June 3, 2025, the cumulative net inflow from southbound trading reached RMB 614.3 billion, far exceeding RMB 262.6 billion for the same period last year. Southbound trading helps enhance investment sentiment and stock selection inspiration. Over the past decade, mainland-related companies have gradually dominated the Hong Kong stock market. According to HKEX data, as of the end of April 2025, mainland-related company stocks accounted for 81.2% of the total Market Cap and 91.29% of the trading volume. From 2025 to now, southbound trading accounted for 21.5% of the average daily trading volume in Hong Kong, higher than 17.3% in 2024, 14.1% in 2023, and 11.8% in 2022.
Regarding the 2025 investment outlook, Bank of China International remains optimistic about the Hong Kong stock market, expecting major policymakers to continue implementing monetary, fiscal, real estate, and stock market policies to counter the potential adverse effects of U.S. President Trump's policies. The bank maintains a forecast for the Hang Seng Index to reach 25,700 points by the end of 2025. In terms of investment recommendations, it is suggested to focus on the Technology and high-end manufacturing sectors. The success of DeepSeek will boost confidence in China's development of high technology and high-end manufacturing. In the future, China will place greater emphasis on enhancing technological innovation capabilities, which are crucial for the long-term sustainable growth of the economy. China is at a critical stage of economic transformation, and developing technology innovation or the Technology sector may become a driving force for economic development, helping to address structural economic issues. At the same time, investors may focus on stocks benefiting from domestic demand growth, high dividend yields, and actively traded southbound stocks.
