Guotai Haitong: Limited outflow pressure of capital from Hong Kong stocks, the incremental capital from the southbound may reach 1.2 trillion yuan to support liquidity throughout the year.

Guotai Haitong released a research report stating that looking ahead to the second half of the year, Hong Kong stocks are expected to continue the bullish trend, with incremental funds continuing to flow in and structural asset advantages being the two main driving factors. In terms of liquidity factors, both outflow and inflow of funds need to be monitored. Looking at the outflow of funds in Hong Kong stocks, from the perspective of comprehensive IPO and refinancing, the total refinancing scale for the year may reach nearly 300 billion Hong Kong dollars; in terms of reductions, the peak of unlockings in the second quarter of Hong Kong stocks has passed, overall reduction pressure has eased, but new consumption with high valuations and concentrated unlockings may face pressure. In terms of fund inflows, the bank pointed out that the full-year incremental supply of funds from the South to Hong Kong stocks is expected to exceed 1.2 trillion Hong Kong dollars, and foreign capital is expected to marginally improve, providing a continuous source of funding for the capital reservoir of Hong Kong stocks. The main points of Guotai Haitong are as follows: Financing: From the perspective of comprehensive IPO and refinancing, the total refinancing scale for the year may reach nearly 300 billion Hong Kong dollars. Benefiting from the warming refinancing environment and policy support for Hong Kong stocks this year, the total refinancing scale of Hong Kong stocks has significantly increased. As of the end of July, the total refinancing scale of Hong Kong stocks this year reached 331.88 billion Hong Kong dollars, with the IPO financing scale reaching 127.88 billion Hong Kong dollars, ranking first globally in terms of financing amount. It is worth noting that with the optimization of the process for mainland A-share leading companies to list in Hong Kong last year, A-share companies have accelerated their listing on the Hong Kong stock exchange. Since the beginning of the year, a total of 10 A-share companies, including Contemporary Amperex Technology and Jiangsu Hengrui Pharmaceuticals, have listed in Hong Kong, with a total fundraising of 89.3 billion Hong Kong dollars, accounting for about 70% of the total IPO financing of Hong Kong stocks. Looking ahead, the total IPO scale for the remainder of the year may be around 150 billion Hong Kong dollars. The bank estimated the size of the future IPO from two perspectives: the number of IPO applications approved by the Hong Kong stock exchange and the number of A-share companies listed in Hong Kong. Firstly, the IPO application data from the Hong Kong stock exchange shows that 9 companies have received approval from the listing committee, and there are 207 companies in the review queue. Based on the average annual approval rate (32%) and average initial fundraising scale (21.9 billion Hong Kong dollars) over the past five years, it is estimated that the total IPO scale for the remainder of the year may be around 150 billion Hong Kong dollars. Secondly, the listing of A-share companies in Hong Kong is the main source of IPOs for Hong Kong stocks. Currently, over 80 A-share companies are planning to list in Hong Kong, with 3 companies having completed filings with the Hong Kong stock exchange and 49 companies having submitted materials. For companies with filed/submitted materials, the potential incremental liquidity demand is estimated to be about 210 billion Hong Kong dollars, while for companies with announced listing plans, a similar estimate puts the potential incremental liquidity demand at about 120 billion Hong Kong dollars. Taking into account the time required for listings, the total IPO scale for the remainder of the year may be around 100 billion Hong Kong dollars, leading to an overall IPO scale for Hong Kong stocks of around 130-150 billion Hong Kong dollars. The total refinancing scale of Hong Kong stocks is expected to remain active, with the total refinancing scale for the year expected to be around 120 billion Hong Kong dollars. In addition to IPOs, the refinancing market for Hong Kong stocks has also been active this year, with the total refinancing scale in the first 7 months of the year growing by 211% compared to the same period last year. Assuming that the growth rate remains the same, the additional refinancing demand for the year may be around 120 billion Hong Kong dollars. In general, from the perspective of comprehensive IPO and refinancing, the total IPO scale for the remainder of the year may be around 150 billion Hong Kong dollars, while the total refinancing scale may be around 120 billion Hong Kong dollars, resulting in an overall financing scale of around 250-300 billion Hong Kong dollars. Reductions: The peak of unlockings in Hong Kong stocks in the second quarter has passed, with a focus on new consumption unlockings in the future. Looking at the overall unlocking situation, the total unlocking amount in Q1 25 was only 17.8 billion Hong Kong dollars, while Q2 25 was the peak period for unlocking, with a total unlocking amount of 444.8 billion Hong Kong dollars in the second quarter, accounting for half of the annual total. In terms of shareholder additions and reductions, although the market value of unlockings increased significantly in the second quarter, overall shareholders in Hong Kong stocks did not net reduce their holdings, with the top ten stocks unlocking in Q2 25 net adding approximately 260 billion Hong Kong dollars, with only a few individual stocks experiencing reductions in shareholder holdings. Looking ahead, while the overall reduction pressure is limited, new consumption sectors with high valuations and concentrated unlockings may face pressure. Although the unlocking wave in Hong Kong stocks continues, the peak of unlocking pressure has passed. Q3 and Q4 25 Hong Kong stock unlocking totals are expected to account for 17% and 31% of the annual total, significantly lower than the 50% in Q2 25. Looking at pre-reduction disclosures, there are currently 7 Hong Kong companies that have disclosed significant shareholder pre-reduction plans and have not yet implemented reductions, with 3 new companies disclosing pre-reduction plans in July, which is consistent with the monthly average of the first 6 months. Additionally, the unlocking amount does not necessarily represent the reduction amount, as the overall shareholder holdings in Hong Kong stocks did not net reduce in the second quarter, possibly due to the overall valuation levels of Hong Kong stocks still being near historical median levels, with market trends and valuation levels being important factors affecting shareholder behavior. In the long term, company valuations are expected to return to near historical averages, with shareholders often promoting increases in shares when valuations are low and reducing holdings for profit when valuations are overheated. Therefore, considering the overall unlocking pressure in the second half of the year, along with current valuation levels of Hong Kong stocks, the future reduction risks for Hong Kong stocks may be relatively under control. In terms of sector analysis, there may be pressure on reductions in the new consumption sector. Looking at the industry pressure for unlockings, the essential consumption sector is facing significant unlocking pressure in the second half of the year, with the unlocking market value accounting for 5% of the total market value compared to the 1% in the first half of the year, while the healthcare industry increased from 1% to 2%; on the other hand, the unlocking pressure for information technology and non-essential consumption sectors has decreased compared to the first half of the year. Considering the valuation levels of the sectors, the essential consumption sector currently has high valuations, with the Wind Hong Kong Daily Consumer Retail Index PE at 98%, near the high of 98% since 2005. Under high valuations, sectors related to new consumption may face certain pressures on reductions. Overall, there was significant unlocking pressure in the second quarter, but overall there was no net reduction. The unlocking pressure for Hong Kong stocks in the rest of the year is expected to ease, with the number of new reduction plans in recent months remaining consistent with previous months. Combined with the current acceptable valuation levels, it is expected that the overall reduction pressure will be limited, but attention should be paid to high valuation and concentrated unlockings in the new consumption sector. Full-year incremental supply from the south is expected to exceed 1.2 trillion, and Hong Kong stocks are expected to be a market for incremental funds in the second half. The bank believes that the overall pressure on the outflow of funds for Hong Kong stocks in the remainder of the year may be relatively manageable, with the full-year net inflow from the south expected to exceed 1.2 trillion yuan, providing a continuous source of funding for Hong Kong stocks. Since the beginning of the year, southbound funds have continued to flow into Hong Kong stocks, with a cumulative net inflow of over 830 billion yuan as of August 25, 2025, surpassing the total inflow for the entire previous year. Looking ahead, southbound funds represented by domestic institutional investors still have considerable room for increased allocations: for public funds, based on the maximum percentage allocation to Hong Kong stocks specified in fund contracts, the total size of public funds is expected to reach 300-450 billion yuan; for insurance funds, benefiting from steady growth in premium volumes, the actual incremental amount of insurance funds is expected to reach around 250-400 billion yuan. Additionally, the increasing concentration of scarce assets in Hong Kong stocks is expected to attract foreign inflows. In recent years, foreign funds have continued to flow out of the Hong Kong stock market, with the proportion of foreign investment in Chinese assets now at historical lows, and foreign funds may improve marginally. The pace of A-share listings in Hong Kong is expected to accelerate in the future, which may also attract long-term international funds, mainly due to two factors: first, from a market perspective, compared to A-share markets dominated by local funds and institutional constraints, international funds are more inclined to allocate to Hong Kong stocks; second, from an asset supply perspective, Hong Kong stocks have lacked core assets representing China's industrial advantages, such as hard technology and specialty consumption, with the landing of core assets from A-shares in Hong Kong stocks expected to provide more choices for international funds. Overall, the funding situation for Hong Kong stocks is expected to continue to improve. The increasing scarcity of assets in Hong Kong stocks is expected to attract continued southbound inflows, supporting the upward trend of Hong Kong stocks. In terms of structure, Hong Kong stocks in the technology sector with low valuations are expected to receive increasing favor from incremental funds.