Since the beginning of 2025, the Hong Kong stock market has experienced a period of volatility.

Since mid-January, the Hong Kong stocks have迎来 a strong rebound. With the emergence of DeepSeek at the end of the month, enthusiasm in the Technology Sector was ignited, further boosting overall market sentiment.

It is worth noting that,$Hang Seng TECH Index (800700.HK)$ From January 13 to the present, the maximum increase has exceeded 25%, establishing a technical Bullish market. Although today's Hong Kong stock market rally has temporarily halted, the Hang Seng TECH Index has still recorded a 15% gain, leading the global market.

Regarding the Hang Seng TECH constituents, many bullish stocks have emerged, such as $SMIC (00981.HK)$ The increase this year has reached 42%.$XPENG-W (09868.HK)$ Increased by 32%, $BYD ELECTRONIC (00285.HK)$ Increased by over 31%, $BABA-W (09988.HK)$ Soaring over 27%. $XIAOMI-W (01810.HK)$ Increased by more than 23%, repeatedly reaching new highs.

What is the driving force behind the recent rise in Hong Kong stocks?

According to Wind, the rise of the Hang Seng TECH Index is based on three major aspects: bullish policies, capital support, and significant breakthroughs in China's technology industry.

On the policy front, many favorable policies have been introduced in the mainland, some aimed at promoting consumption and stabilizing growth, while others support the development of high-tech enterprises, high-end manufacturing, AI, chips, and other industries.

On the financial side, net buying amount from southern capital in 2024 reached 807.869 billion Hong Kong dollars, an increase of 2.5 times compared to 2023, setting a record for the largest annual net buying scale. In January 2025, the monthly net inflow of southern capital was 125.6 billion Hong Kong dollars, the highest monthly figure since February 2021 and the third highest in history. At the same time, international capital has begun to favor Chinese Assets. Overseas Institutions such as Goldman Sachs and Deutsche Bank are actively bullish on Chinese Stocks, believing that Hong Kong Stock valuations have advantages, attracting inflows of international capital.

In terms of the Technology industry, breakthroughs and commercialization progress of domestic large models like DeepSeek, coupled with institutions' optimistic expectations for the explosive potential of AI applications, have driven a continuous surge in investment sentiment for Technology Stocks.

It is noteworthy that mainland investors' enthusiasm for the Hong Kong stock market is at an all-time high.

Yesterday, the trading volume through the Hong Kong Stock Connect accounted for nearly half of the total trading volume of Hong Kong stocks, with a net buying amount reaching 16.5 billion Hong Kong dollars, marking the highest level since early December.

Analysts from SWHY also stated that in recent years, the proportion of Hong Kong Stock Connect capital in the market's transaction volume has been continuously increasing. From the fourth quarter of 2024 to the present, the capital from Hong Kong Stock Connect has accounted for 20%-25% of the market's transaction volume on most trading days, making its impact on the market significant.

Currently, the allocation ratio of overseas investors to China is at a low level, and the current inflow of funds into the Hong Kong stock market mainly comes from passive funds such as ETFs. In addition, the short-selling ratio in the market has begun to decrease, and the market's turnover ratio has also picked up, indicating that trading activity in the market is increasing.

Therefore, SWHY believes that there is still room for further improvement in liquidity in the Hong Kong stock market, and if a FOMO effect occurs, the bullish trend in the stock market may become more rapid.

Additionally, according to Hong Kong Radio, the Hong Kong SAR government's new budget will be announced at the end of the month. The Hong Kong General Chamber of Commerce has proposed to expand the cross-border wealth management connect scheme to other major cities in the mainland and to broaden the range of products. Regarding the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, it is suggested to relax the eligibility criteria for the 'Southbound Trading' investors and exempt mainland individual investors from the 20% tax when purchasing Hong Kong Stocks through the Shanghai-Hong Kong Stock Connect.

What is the outlook for the market?

Looking ahead to February, CITIC SEC has stated that the narrative of re-evaluating China's assets is forming, and the spring rally is entering an accelerated stage, with more extreme trading. The improvement space for the liquidity of Hong Kong stocks is marginally better than A shares, and the focus of the market is more towards Hong Kong stocks.

Some market opinions believe that in Hong Kong stocks, the optimistic sentiment for a 'long bull market' is even more fervent than in A shares, benefiting from the Federal Reserve's rate cuts and the liquidity support provided by domestic monetary stimulus policies. Hong Kong stocks are truly enjoying the 'dual liquidity dividend' from both China and the USA. Coupled with the recent explosion of AI investment frenzy in China by DeepSeek, Hong Kong stocks serve as the gateway for foreign investments in the Chinese market, making them the best entry point for hedge funds and other external asset management institutions to invest in Chinese companies, resulting in a rush of foreign capital into Hong Kong stocks.

Major overseas investment banks are continually vocal about being bullish on China's assets, calling on foreign investment institutions to increase allocations to Chinese assets.

Deutsche Bank published a research report on February 5, stating that 2025 will be a year for Chinese companies to rise globally, and the phenomenon of undervaluation of Chinese stocks will disappear. The bull market cycle for A-shares and Hong Kong stocks began in 2024, as global investors generally have a low allocation to Chinese assets, and future adjustments to investment portfolios will be needed to avoid missing growth opportunities in the Chinese market.

Bank of America strategists suggest going long on Chinese stocks, expecting that the leading advantage of the U.S. stock market will continue to fade after it stops its continuous rise at the beginning of 2025.

Fidelity portfolio manager Taosha Wang stated in an interview with Bloomberg Television that Fidelity International has increased its holdings in Chinese Stocks and given them an overweight rating, as the "animal spirit" in the Chinese market is returning. It was reported that Taosha Wang mentioned that exciting new AI tools will also bring opportunities, referencing DeepSeek.

Meanwhile, last year, American billionaire David Tepper's hedge fund Appaloosa LP, which boldly declared to "Buy everything Chinese Assets", significantly increased its holdings in two major Chinese Internet giants in the US stock market in the fourth quarter. $Alibaba (BABA.US)$ and $JD.com (JD.US)$ According to a securities investment filing report this week, these two companies have become one of the largest positions in his hedge fund.

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Editor/Somer