Breaking records again! Southbound funds are expected to "go on a buying spree" in Hong Kong stocks, with an estimated investment of 750 billion Hong Kong dollars in 2024. After ten years of mutual market access, there is now one-third of the world.

As of December 13th, the cumulative turnover of southbound funds through the Hong Kong Stock Connect has exceeded 10 trillion yuan so far this year, surpassing the total for last year by nearly 50%. According to the latest data from Wind, the annual turnover of the Hang Seng Index has already surpassed 3.1 trillion Hong Kong dollars in 2024. This also means that southbound funds through the Hong Kong Stock Connect account for about one-third of the current Hong Kong stock market turnover, making it a crucial player in the market. The tenth anniversary of the mutual market access program has seen record inflows of southbound funds. As of the time of writing, net purchases of southbound funds for the year have reached 751.819 billion yuan, a year-on-year increase of about 136%, setting a new annual record for inflows. This year marks the tenth consecutive year of net purchases since the program was launched, with no doubt. The 136% annual increase in net inflows also ranks among the top three in history. Especially considering that the accumulated net inflow of southbound funds to the Hong Kong stock market is already around 3.64 trillion Hong Kong dollars, the ability to continue large-scale inflows under such a huge base continues to demonstrate the strong commitment of domestic funds to increase their holdings in Hong Kong stocks. In terms of market trends, the liquidity brought in by southbound funds has played a decisive role in supporting the Hong Kong stock market in 2024. Looking at the trend of inflows, when the Hang Seng Index was hovering below 20,000 points in the second quarter, southbound funds continued to buy strongly in Hong Kong stocks. The average monthly net inflow from March to June exceeded 80 billion Hong Kong dollars. The peak monthly net inflow of southbound funds in 2023 was only about 75.5 billion Hong Kong dollars. It is worth noting that in September, the Hong Kong stock market surged in the short term on expectations of incremental policies, but then experienced continuous pullbacks in October and November. During this period, southbound funds once again provided support by significantly buying about 83.8 billion and 125 billion Hong Kong dollars respectively. The 125 billion Hong Kong dollars in November set a new monthly inflow record in nearly four years. The record inflows of funds are backed by continuously released policy dividends. Among them, the expansion of eligible products for southbound funds through the introduction of ETF connectivity between the two markets has further strengthened the foundation. On April 19, 2024, the China Securities Regulatory Commission announced five optimization measures for the mutual market access, further expanding the range of eligible stock ETF products. On July 22, the Hong Kong Stock Exchange and the Shanghai and Shenzhen Stock Exchanges respectively announced the latest list of ETF connectivity targets according to the new standards, and the expansion of eligible ETFs officially took effect. After the expansion, the Hong Kong Stock Connect added six new ETFs (for a total of 16). The report shows that by the end of November, the total market value of eligible HKEX trading funds (ETFs) exceeded 300 billion Hong Kong dollars. Ashley Alder, the CEO of the Hong Kong Securities and Futures Commission, has stated that the Hong Kong ETF market has achieved several new milestones this year, as eligible ETFs continue to grow steadily under the market connectivity mechanism, and because of the new links established between Hong Kong and the Middle East. Heavy betting on financial and consumer stocks - Alibaba (09988) attracts over 80 billion yuan in investment As of last Friday, in terms of the structure of southbound capital inflows, the financial, non-essential consumer, and energy sectors have been the top three industries in terms of inflows during the year. The inflows amounted to 174.34 billion Hong Kong dollars, 122.624 billion Hong Kong dollars, and 64.925 billion Hong Kong dollars respectively. Unlike the defensive industries of electricity, telecommunications, and energy that were grouped together last year, in 2024, southbound funds have shown more interest in attacking industries with growth potential and cyclical properties. However, for industries like pharmaceuticals and real estate that are still in a cyclical downturn, southbound funds have not "buying on the dip" as much, and the share of holdings in terms of market value has decreased. In terms of individual stocks, there have been some changes in the top ten holdings of southbound funds. Tencent and China Mobile Limited continue to rank in the top two, with net increases of 50.62 million shares and 471 million shares respectively this year. In addition, Bank of China and Alibaba have replaced China Shenhua Energy and Semiconductor Manufacturing International Corporation to become the top ten heavy holdings of southbound funds. On September 10, Alibaba was listed on the Hong Kong Stock Connect and received a net inflow of nearly 8.5 billion Hong Kong dollars on the first trading day, with a total inflow of over 80 billion Hong Kong dollars this year. It is worth pointing out that despite the increasing scale of net inflows of southbound funds year after year, and the trend of further growth, the Hong Kong Stock Connect list still focuses on large market capitalization core technology stocks, heavyweight blue chips, and industry leaders. As of August 31, 2024, there were 544 stocks in the eligible range for southbound trading, accounting for 20.7% of the total number of Hong Kong stocks and 85.9% of the total market value of Hong Kong stocks. As a result, the discussions in the market about the "pricing power" of southbound funds on the Hong Kong stock market mostly focus on individual stocks, and the influence of funds on the overall market and industry trends of Hong Kong stocks still needs to be strengthened. In November, the Hong Kong Stock Exchange announced that several measures to optimize market connectivity are being prepared, including the introduction of block trading in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs, the inclusion of Real Estate Investment Trusts (REITs) in the Shanghai-Hong Kong Stock Connect, and the inclusion of Renminbi stock trading counters in the Hong Kong Stock Connect. On December 12, the Hong Kong Securities and Futures Commission published a quarterly report stating that Hong Kong's capital markets have benefited from the successful market connectivity with the mainland since the third quarter. Since the optimization measures were introduced in February, southbound investments under the Cross-Border Wealth Management Connect program have grown by over 60%. Looking ahead, with the advancement of market connectivity between the two regions, the continuing attention of incremental funds brought by policy dividends to the targets of the Hong Kong Stock Connect, the influence of southbound funds in the Hong Kong stock market may rise to a new level. This article was originally published by "Cailian Press" and written by Feng Yi; edited by Huang Xiaodong.