Mainland buying of Hong Kong stocks reached HK$731.2 billion (US$93 billion) in the first half of the year, according to data from the Hong Kong bourse and Bloomberg on Monday. Last year, southbound net purchases reached HK$808 billion, a record since the programme started in 2014.
The buying spree has been underpinned by a re-rating of China’s technology sector and attractive valuations. Hong Kong’s equity market is dominated by large mainland tech firms that are not listed onshore and as a result, stocks in the city have benefited from a re-evaluation of China’s tech sector spurred by an artificial intelligence breakthrough earlier this year. In addition, Hong Kong stocks are cheaper than their mainland counterparts, trading at 11.2 times earnings – the second cheapest among the world’s major equity markets.
“Mainland inflows have been accelerating because of the valuation advantage, the listing scarcity and arbitrage demand,” said Wu Xinkun, an analyst at Guotai Junan Securities in Shanghai. “Hong Kong’s market now more reflects mainland [investors’] behaviours and risk preferences.”
Increased exposure to mainland capital has made Hong Kong stocks more responsive to changes in China’s economic fundamentals and corporate earnings, with its links to US markets fading. The 120-day correlation between the Hang Seng Index and the S&P 500 dropped to an average of 0.09 this year from 0.2 per cent over the past decade, according to Bloomberg data.
The Hang Seng Index has risen 20 per cent so far this year, second only to the 28 per cent gain for South Korea’s Kospi index. Most of the Kospi’s gains came in the first quarter before US President Donald Trump rolled out his so-called reciprocal tariffs.
