Broad strategy: from losing when not buying to losing when buying - look at the pricing power of moving south.

GF SEC released a research report stating that since September 2024, the trading volume of southbound funds has rapidly increased to 20%~30%, almost doubling compared to before 2024. In 2025, a phenomenon appeared where both active and passive foreign funds often serve as synchronous indicators of the Hong Kong stock market and do not show any leadership; and during sharp drops/corrections in the Hong Kong stock market, southbound funds can be seen buying against the trend. The beginning of each round of pricing power competition usually involves the optimization of the Hong Kong stock market connect policy/increase in incremental funds entering the market, with the direction of inflows depending on the attributes of the incremental funds, typically flowing towards dividend-yielding and scarce assets. Net outflows of southbound funds typically occur due to industry policies/negative external macroeconomic conditions. Industries that may experience relatively large net outflows are concentrated in industries where foreign pricing power is increasing/policies are clearly negative, such as software services, hardware equipment, consumer services, optional consumer retail, etc. Industries that are less likely to experience large-scale net outflows are those preferred by medium to long-term funds, such as banks, telecommunications services, utilities, unless policies negatively impact the industry, such as the anti-monopoly actions in 2021. GF SEC's main points are as follows: Since September 2024, the trading volume of southbound funds has rapidly increased to 20%~30%, almost doubling compared to before 2024, and in 2025, a phenomenon appeared where both active and passive foreign funds often act as synchronous indicators of the Hong Kong stock market and do not show any leadership; and during sharp drops/corrections in the Hong Kong stock market, southbound funds can be seen buying against the trend. Review of the two rounds of competition for pricing power in the Hong Kong stock market: 2016-2017, 2020-2021. (1) The beginning of each round of pricing power competition usually involves the optimization of the Hong Kong stock market connect policy/increase in incremental funds entering the market, with the direction of inflows depending on the attributes of the incremental funds, typically flowing towards dividend-yielding and scarce assets. (2) Net outflows of southbound funds are typically due to industry policies/negative external macroeconomic conditions. Industries that may experience relatively large net outflows are concentrated in industries where foreign pricing power is increasing/policies are clearly negative, such as software services, hardware equipment, consumer services, optional consumer retail, etc. Industries that are less likely to experience large-scale net outflows are those preferred by medium to long-term funds, such as banks, telecommunications services, utilities, unless policies negatively impact the industry, such as the anti-monopoly actions in 2021. In this round of southbound fund inflows into the Hong Kong stock market, the proportion of medium to long-term funds has increased. In 2025, insurers made 41 stake acquisitions, with 35 of them in H-shares, marking the highest record in the past 10 years. Mainly increased holdings in industries such as optional consumer retail, finance (banks, insurance), innovative drugs, software services, hardware equipment, etc. Current industries where southbound funds/Chinese funds have pricing power: semiconductors + dividends; industries without pricing power: internet, hardware equipment, software services, home appliances, media, etc. (1) Method one: Southbound fund positions proportion (13%): coal (41.8%), semiconductors (32.7%), environmental protection (24.5%), oil and petrochemical (24.1%), and pharmaceuticals (20.5%). (2) Method two: "Southbound funds + Chinese intermediaries" positions proportion (21%). Semiconductors (61.7%), coal (59.9%), defense and military industry (52.4%), steel (40.3%), environmental protection II (38.9%). (3) Method three: International intermediary positions with the least proportion. Industries with pricing power include telecommunications services, oil and petrochemical, coal, semiconductors, banks, etc. Industries without pricing power are concentrated in internet, hardware equipment, software services, home appliances, media, etc. Actively managed public funds have very low pricing power in the Hong Kong stock market, with a concentration on AI-related CSP giants, electronics, and innovative drugs. In the fourth quarter, funds flowing into the Hong Kong stock market through the Hong Kong stock connect are likely to be passive ETFs and insurers. Hengkong has fallen below the 120-day moving average, reflecting negative factors such as trade friction between Europe and the US, the peak of last year's year-end unlocking, and the high-tech tax on the internet. If liquidity pressures ease in the future, combined with the traditional spring movement of the Hong Kong stock market, there may be an investment opportunity for a wave of upward beta in the early part of the year. Risk warnings: geopolitical risks, overseas inflation risks, low expectations for domestic stable growth policies, etc.