Trillions of Funds Are Pouring In! Southbound Capital Net Purchases Have Reached a New High, and Hong Kong Stocks May Be on the Verge of a Breakthrough? Five New Characteristics to Explore

As of September 8, southbound inflows via Stock Connect have surged to HKD 1.03 trillion this year, equal to 127 percent of the full-year total in 2024. Cumulatively, mainland investors have acquired over HKD 4.7 trillion of Hong Kong equities since the scheme’s inception, with 2025’s net purchases already representing 21.77 percent of that sum. On September 2, the year-to-date southbound net inflow exceeded HKD 1 trillion for the first time, propelled by a single-day purchase of HKD 9.281 billion—among the largest daily totals since Stock Connect began. Yet while capital flows hit new highs, the A-share and Hong Kong markets have diverged sharply: since July, China’s sci-tech sector has led with thematic funds and the innovation board index repeatedly setting records, whereas the Hang Seng Index has languished around 25,000 points without challenging prior peaks.

A detailed analysis by CICC divides this year’s capital-market trends into three distinct phases. From January through March, Hong Kong equities outperformed as AI breakthroughs and investments fueled dramatic gains in technology and internet names, lifting the Hang Seng Tech Index to new highs. Between April and June, U.S. stocks took the lead on the back of stronger-than-expected earnings from top technology firms, while Hong Kong tech failed to revisit its March zenith. Since July, ample liquidity has driven a robust rally in A-shares—particularly in the sci-tech innovation segment—leaving both Hong Kong and U.S. markets in a high-level consolidation. This rotation underscores that Hong Kong’s recent underperformance reflects a dearth of fresh fundamental catalysts, with corporate earnings growth yet to meet market expectations.

Liquidity conditions in Hong Kong have shown marginal improvement since mid-August, as the Hong Kong Monetary Authority absorbed excess local currency and withdrew liquidity, allowing the Hong Kong Interbank Offered Rate to stabilize after a sharp rise. At the same time, Federal Reserve Chair Jerome Powell’s increasingly dovish commentary has bolstered expectations for U.S. rate cuts. These developments have eased funding pressures, reduced financing costs, and created a more supportive backdrop for Hong Kong equities.

Trading activity in the local market has reached levels rarely seen in recent years. Last week’s average daily turnover climbed to HKD 357.2 billion—an increase of HKD 76.9 billion week-on-week and ranking at the 97.4th percentile of the past three years. Wind data show that through August, 2025’s average daily turnover averaged HKD 247.3 billion, up 87 percent from 2024’s HKD 131.9 billion, while August itself saw HKD 279.1 billion per day—192 percent higher than the same month last year. This sustained growth in volumes reflects mounting investor engagement and deeper market liquidity, laying a solid foundation for the Hong Kong market’s long-term health.

Capital support has been bidirectional. Mainland southbound buying has maintained its net-purchase trend, and Industrial Securities expects this inflow to continue as domestic investors remain optimistic. A Financial Associated Press survey reports that new client accounts opened by Galaxy Securities for Stock Connect this year have already exceeded 2024’s total, underscoring robust retail interest. Offshore, CMB Strategy data indicate that foreign investors net purchased HKD 430 million of Hong Kong equities via China-focused ETFs last week, bringing cumulative ETF-driven inflows to USD 11 billion since September 24, 2024.

Short-term volatility may intensify amid structurally driven dynamics. CMB Securities (Hong Kong) observes that the global economy remains in a deflationary cycle, and although China’s recovery shows nascent signs, its momentum is insufficiently robust. Corporate profit growth sits at near-historic lows, and incremental policy measures offer limited additional stimulus. Under these conditions, Hong Kong equities have taken on “water buffalo” qualities—relying more on liquidity easing than on sturdy earnings growth. Even as expectations for Fed rate cuts, improved local liquidity, and a narrowing A-H premium underpin a rebound, the absence of a compelling market narrative, upcoming U.S. Treasury issuance, shifts in Fed-cut timing, and major geopolitical events could all heighten market swings.

Long-term opportunities in Hong Kong stocks remain compelling. Zhang Yidong, Chief Strategy Analyst at Industrial Securities, argues that as headwinds dissipate, fund flows rebalance, and valuation advantages become more pronounced, Hong Kong equities are poised for a fresh advance in the fourth quarter. CITIC Securities (Hong Kong) offers an even more optimistic medium- to long-term outlook, forecasting that an improved supply-demand balance in China will mark an inflection point in its economic cycle. Rising technology capital expenditures and R&D investments should translate into stronger corporate earnings, while synchronized easing from the Fed and the People’s Bank of China will sustain both southbound and foreign capital inflows. Trading below historical valuation norms on the Hang Seng Index, Hong Kong stocks are well positioned to benefit from fundamental upgrades, upward earnings revisions, and multiple expansion.

For investors weighing A-shares against Hong Kong equities, CICC Research recommends a tailored approach. Those seeking to maximize liquidity-driven rallies may find A-shares more direct—offering greater exposure to incremental funds and trading-oriented mechanics. Conversely, investors wary of a pure liquidity play may prefer Hong Kong stocks—especially sectors enjoying structural tailwinds—as a more prudent choice for conservative, long-term portfolios.