<Research>CICC Estimates Remaining Southbound Fund Inflow Capacity at HKD600-800B This YrThe current wave of southbound fund inflows began in October last year, accelerating after the Lunar New Year, characterized by its large scale and rapid pace, CICC said in a report.
Daily net inflows exceled HKD 5 billion in November, January, and February, with 10 out of 27 trading days since the start of this year recording single-day net inflows surpassing HKD10 billion.
In FY2024, southbound funds totaled HKD807.87 billion, averaging HKD3.47 billion daily.
Since the beginning of this year, total inflows have reached HKD375.53 billion, with a daily average of HKD8.16 billion, more than double last year’s figure.
Fueled by the rapid and substantial inflows, southbound trading volume once accounted for 33.7% of the HKEX (00388.HK) main board’s total turnover, while southbound holdings rose to 10.5% of the main board’s total market cap, both hitting record highs. Meanwhile, the A/ H premium narrowed to a recent low of 130.5%.
Against this backdrop, the narrative of revaluation of technology stocks and Chinese assets triggered by DeepSeek after the Spring Festival was the key catalyst for this round of southbound capital inflows, especially in the past two weeks.
Prior to this, when the market breached the early October peak from the last rally, some investors saw outflows as they covered losses.
Regarding sources, the sustained southbound inflows likely stem from active participation by retail investors and private funds, alongside ongoing allocations from public funds and insurance capital.
CICC’s analysis, based on various data points, revealed:
1) recently, the net inflow of funds from mainland China that can invest in Hong Kong stock ETFs has risen sharply, setting a monthly record high;
2) unusual volatility in some small- and mid-cap stocks under the Stock Connect program, mirroring patterns seen in A-share small- and mid-caps, suggested involvement of speculative capital and private funds;
3) some insurance capital continued to allocate to high-dividend Hong Kong stocks while modestly increasing exposure to the tech sector;
4) mainland public funds have also remarkably ramped up allocations to Hong Kong tech stocks.
In terms of flow direction, there was a rotation from high-dividend stocks to technology. Late last year, high-dividend stocks were a key focus of southbound allocations, but since February, inflows have increasingly concentrated on tech stocks.
Since the Lunar New Year, the top 10 stocks by southbound net purchases have totaled HKD133.09 billion, responsible for 55% of overall inflows, with BABA-W (09988.HK) alone receiving HKD73.46 billion, or 31% of the total.
Since the start of the year, southbound funds have cumulatively flowed in at HKD375.53 billion, with a daily average of HKD8.16 billion, over twice the FY2024 daily average of HKD3.47 billion.
If this pace continues linearly, annual inflows could reach HKD1.8 trillion to HKD2 trillion. Using a top-down approach, CICC estimated the potential inflow capacity from various investor types (insurance, public funds, private funds, and retail) at approximately HKD600 billion to HKD800 billion.
Source: AAStocks Financial News
http://www.aastocks.com/en/stocks/news/ ... -news/AAFN
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