Southbound Capital Floods In!

Southbound capital is accelerating its flow into Hong Kong stocks. On August 15, southbound capital recorded a net inflow of approximately HK$35.876 billion, setting a new historical record for single-day net purchases. Year-to-date cumulative net inflows have reached HK$938.921 billion, far exceeding last year's full-year total of HK$807.869 billion.

Looking ahead, brokerage institutions predict that annual southbound net inflows could exceed 1.2 trillion yuan, providing continuous "fresh capital" to Hong Kong's stock market reservoir. Additionally, the increasing concentration of scarce assets in Hong Kong stocks is expected to attract foreign capital back. Morgan Stanley's China Chief Equity Strategist Laura Wang's team indicates that after global long funds have been net buyers of Chinese stocks for two consecutive months, the trend of returning to Chinese markets is expected to be "even stronger."

**Southbound Capital Buying Spree**

On August 15, southbound capital achieved net purchases of approximately HK$35.876 billion, breaking the historical record for single-day net inflows. The Shanghai-Hong Kong Stock Connect contributed net inflows of about HK$19.712 billion, while the Shenzhen-Hong Kong Stock Connect recorded net inflows of approximately HK$16.165 billion.

Daily southbound capital turnover reached approximately HK$179.622 billion, marking a three-week high and accounting for 57.44% of the Hang Seng Index's daily trading volume.

Hong Kong Exchange data shows that southbound capital made significant net purchases today: Alibaba (HK$1.454 billion), Tencent Holdings (HK$1.407 billion), and Meituan (HK$1.247 billion).

Wind data indicates that this week's cumulative southbound net inflows totaled approximately HK$38.121 billion, representing a 75% increase compared to the previous week. Year-to-date southbound net inflows have accumulated to HK$938.921 billion, significantly surpassing last year's full-year figure of HK$807.869 billion.

In terms of individual stocks, over the past seven days, southbound capital made substantial net purchases of Xiaomi Corporation (HK$3.628 billion), Alibaba (HK$3.304 billion), China Life Insurance (HK$1.353 billion), and Tencent Holdings (HK$1.050 billion), while conducting significant net sales of Kuaishou (HK$2.356 billion).

At the market level, Hong Kong's three major indices declined today. At close, the Hang Seng Index fell 0.98% to 25,270.07 points; the Hang Seng Tech Index dropped 0.59% to 5,543.17 points; and the Hang Seng China Enterprises Index declined 0.98% to 9,039.09 points.

However, the securities sector surged against the trend. At close, CITIC Securities, China Galaxy Securities, and China International Capital Corporation gained 10.98%, 9.48%, and 8.50%, respectively.

On the news front, A-share market turnover climbed to 2.3 trillion yuan, with margin trading balances simultaneously breaking through 2 trillion yuan for the second consecutive trading day. Additionally, most securities firms' earnings previews show substantial growth, with continued recovery in primary and secondary markets providing support for future performance growth.

Meanwhile, Hong Kong's semiconductor sector collectively strengthened. At close, Innoscience, Hua Hong Semiconductor, and BeiKe Micro surged 17.38%, 5.21%, and 5.08%, respectively.

In its latest report, Founder Securities expressed strong optimism about two major semiconductor directions: autonomous control and edge AI. The firm noted that autonomous control represents the strongest theme in semiconductors, with domestic supply chains strengthening across AI computing power, manufacturing, and assembly and testing.

Banking stocks collectively declined, with China Minsheng Banking Corp, Postal Savings Bank of China, and Industrial and Commercial Bank of China all falling over 3% at close.

**Future Market Outlook**

Analysts point out that the record southbound capital inflows reflect a comprehensive response to Hong Kong stocks' valuation advantages, industrial upgrade dividends, and policy support. Despite ongoing external uncertainties, from a medium-term perspective, Hong Kong stocks maintain significant allocation value supported by three factors: the upward technology industry cycle, interim earnings validation, and liquidity easing.

Looking ahead at Hong Kong stocks, Cathay Securities published research indicating that Hong Kong stocks are expected to continue their bull market trajectory, driven by two factors: continued incremental capital inflows and structural asset advantages. Overall capital outflow pressure from Hong Kong stocks may remain relatively manageable for the remainder of the year, with annual southbound net inflows potentially exceeding 1.2 trillion yuan, providing continuous "fresh capital" to Hong Kong's stock market reservoir.

Cathay Securities further stated that the increasing concentration of scarce assets in Hong Kong stocks is expected to attract foreign capital back. In recent years, foreign capital has continuously flowed out of Hong Kong's stock market, and current foreign allocation ratios to Chinese assets have fallen to historical lows, suggesting potential marginal improvement ahead. The pace of A-share companies seeking Hong Kong listings may accelerate, potentially attracting international long-term capital for two main reasons:

First, from a market characteristics perspective, compared to A-share markets dominated by domestic capital and institutional constraints, international funds prefer allocating to Hong Kong stocks;

Second, from an asset supply perspective, Hong Kong stocks previously lacked core assets representing China's industrial advantages in hard technology and distinctive consumption. A-share core assets listing in Hong Kong could provide international funds with more choices.

CITIC Securities believes that the interim earnings period will be a crucial juncture for whether Hong Kong's market rally continues. With continued southbound capital inflows, the market is expected to gradually shift from liquidity-driven to performance-driven, with stocks delivering better-than-expected results and guidance revisions likely to continue benefiting.

CITIC Securities also noted that "anti-involution" policy changes will become core variables in sector pricing, recommending attention to directly benefiting sectors including solar, rare earth, lithium, and express delivery, as well as high-growth pharmaceutical and technology sectors. Additionally, in mainland China's low interest rate environment, scarce and performance-stable quality leading companies will undergo value reassessment.