Significant Southbound Capital Inflows into Hong Kong Stocks—Three Investment Directions to Watch

This year’s persistent net inflows via southbound Stock Connect have invigorated the Hong Kong equity market, with last week’s five trading sessions seeing HKD 33.06 billion of southbound net purchases—an increase of HKD 10.888 billion week-on-week—according to Wind. Cumulative southbound inflows reached HKD 1.038994 trillion as of September 9, more than double the amount recorded during the same period in 2024 and accounting for over 21.7 percent of all net purchases since the mechanism began. On September 2, southbound flows surpassed HKD 1 trillion for the first time this year, driven by a single-day net purchase of HKD 9.281 billion—among the largest daily totals since Stock Connect’s inception. While mainland sci-tech shares have led gains since July, pushing thematic funds and the sci-tech innovation board index to successive highs, the Hang Seng Index has oscillated around 25,000 points without breaking past its recent plateau.

Analysts recommend a cautiously optimistic stance toward Hong Kong equities. With the Hong Kong Interbank Offered Rate stabilizing, expectations for U.S. rate cuts rising, and interim corporate results largely in hand, investors are encouraged to participate in catch-up rallies. Opportunities are most compelling where strong earnings momentum intersects with attractive valuations, in sectors positioned to benefit from ongoing policy catalysts, and in areas offering robust dividend yields.

● Liu Yingjie, Tan Dinghao

By September 8, southbound investors held 537.222 billion Hong Kong–listed shares, up by 70.684 billion shares since the start of 2025, with a combined market value exceeding HKD 5.8 trillion—an increase of HKD 2.2 trillion year-to-date. Financials, information technology, and consumer discretionary remain the largest sector allocations at HKD 1.423545 trillion, HKD 1.260869 trillion, and HKD 796.056 billion respectively, while healthcare and communications services holdings stand at over HKD 600 billion and HKD 490 billion. At the individual stock level, positions in Tencent Holdings exceed HKD 590 billion, with China Mobile and China Construction Bank each above HKD 250 billion. Holdings in Alibaba-W, Xiaomi Group-W（01810.HK）and Industrial and Commercial Bank of China each top HKD 200 billion, and stakes in CNOOC, HSBC Holdings, SMIC, Bank of China, and Meituan-W all exceed HKD 100 billion. During January–September 8, the largest increases in share counts came from China Construction Bank (+6.923 billion shares), Haotian International Construction Investment (+4.97 billion), Bank of China (+4.771 billion), Industrial and Commercial Bank of China (+3.725 billion), and Agricultural Bank of China (+2.417 billion). Large-caps such as Alibaba-W (+843 million shares), Meituan-W (+416 million), SMIC (+610 million), China Merchants Bank (+565 million), and China Mobile (+258 million) also saw net additions.

Hong Kong’s three major indices have delivered standout returns in 2025. As of the September 9 close, the Hang Seng Index, Hang Seng China Enterprises Index, and Hang Seng Tech Index have gained 29.30 percent, 26.78 percent, and 30.45 percent respectively. All twelve sector indices have advanced, led by materials (+103.95 percent), healthcare (+99.20 percent), and information technology (+50.30 percent), while financials have climbed over 30 percent and consumer discretionary, industrials, real estate & construction, and conglomerates have each risen more than 20 percent. Utilities remain the laggard with a 4.63 percent increase. Among Hang Seng constituents, 75 of 88 stocks are higher year-to-date; Pop Mart has surged over 220 percent, China Biopharma over 180 percent, Chow Tai Fook over 145 percent, JD Health and CSPC Pharmaceutical over 130 percent, Hansoh Pharmaceutical over 120 percent, and China Hongqiao, Alibaba Health, WuXi Biologics, Zijin Mining, and WuXi AppTec have all advanced at least 100 percent.

The strategy team at China Merchants Securities (Hong Kong) expects China’s improving supply-demand dynamics to mark an economic cycle inflection, with technology capital expenditures and R&D spending gradually translating into corporate earnings. Against a backdrop of rising Fed rate-cut expectations, continued southbound and foreign capital inflows should lift Hong Kong stocks, which trade at a global valuation discount and stand to benefit from fundamental upgrades, upward revisions in earnings forecasts, and valuation recovery over the medium to long term.
Chief Macro Economist Yi Xuan of Huatai Securities highlights that ample liquidity and a rebound in fundamental expectations are key supports for the Hong Kong market. Earnings recovery led by technology, new consumption, and pharmaceuticals—coupled with stronger domestic policy support—has underpinned steady profit growth.

Liu Gang, Chief Overseas Strategy Analyst at CICC Research, observes that this year’s market strength has been driven by structural rotations rather than broad index moves. With index momentum constrained by earnings pressure, sectors with clear growth visibility—such as pharmaceuticals, tech hardware, non-ferrous metals, non-bank financials, consumer electronics, new consumption, and auto parts—offer the most compelling opportunities.

Yang Chao, Chief Strategy Analyst at China Galaxy Securities, identifies three principal investment themes for the Hong Kong market: segments with high earnings growth but still moderate valuations, including consumer discretionary, staples, and utilities; sectors poised to benefit from expanding or sustained policy support, such as the AI industry chain and consumption plays; and financials, whose high dividend yields may provide relatively stable returns amid ongoing global and domestic uncertainties.

MACD golden-cross signals have formed across multiple names, further underscoring the market’s renewed bullish momentum