Sweeping up Hong Kong stocks! Northbound capital sets a record with a net buy of 840 billion, and these top ten companies are highly favored this year.

In July, the overall performance of the Hong Kong stock market was very strong, with the Hang Seng Index reaching 25,735 points, a new high in nearly four years.

Since the beginning of this year, Northbound capital has continued to significantly increase its positions in the Hong Kong stock market, becoming the largest source of incremental funds. As of July 29, the cumulative net Inflow of Northbound capital reached HKD 842.002 billion, setting a new annual record for net Inflow, surpassing the HKD 807.869 billion net Inflow in 2024.

Industry insiders pointed out that, against the backdrop of significantly enhanced 'profit-making opportunities' in the Hong Kong stock market this year, Northbound capital achieved a breakthrough of historical peaks in just seven months, indicating that the demand for allocation of mainland capital in the Hong Kong stock market has entered a stage of explosive growth.

Specifically, among the companies favored by Northbound capital this year, Technology stocks account for half of the portfolio. $BABA-W(09988.HK)$ 、 $MEITUAN-W(03690.HK)$ 、 $SMIC(00981.HK)$ 、 $TENCENT(00700.HK)$ 、 $KUAISHOU-W(01024.HK)$ ; Additionally, high-dividend stocks $CCB(00939.HK)$ 、 $CHINA MOBILE(00941.HK)$ and other Northbound funds have also been allocated. In addition, Northbound funds have bought into innovative drug Concept stocks $INNOVENT BIO(01801.HK)$ , and Cars stocks $LI AUTO-W(02015.HK)$ 。

According to Securities Times, the Chief Equity Investment Officer of Shunshi Investment believes that the main reason behind the continuous Inflow of Southbound funds into Hong Kong stocks is that the Hang Seng Index has been undervalued. Since 2018, the Hang Seng Index has undergone a six-year adjustment period, with many individual stocks experiencing significant declines. However, there are still many companies with excellent performance that have maintained good growth. Against the backdrop of economic stabilization and improved market conditions, these companies have attracted the attention of mainland investors.

Moreover, the Hong Kong stock market features many Assets that are scarce in the domestic market, such as large platform companies like Tencent, Meituan, and Alibaba, as well as new consumer companies like POP MART and MIXUE Group. The listing of platform companies and new consumer companies in Hong Kong has enriched the investment varieties available in the Hong Kong stock market, providing more options for Southbound funds.

Institutions point out that the outlook for the Hong Kong stock market is expected to improve further.

The continuous inflow of southbound funds not only improves the liquidity of the Hong Kong stock market but also enhances the pricing power of mainland capital in the market.

Regarding the future incremental funds for the Hong Kong stock market, CICC (China International Capital Corporation) believes that the relatively certain incremental southbound Inflow will be around HKD 200-300 billion. The cumulative Inflow for the year may exceed HKD 1 trillion, with the Inflow pace potentially slowing in the second half. As for foreign capital, it is unrealistic to expect a significant return of long-term foreign capital from Europe and the United States, but the space for a large Outflow is also limited. In terms of buybacks, the amount in the second half is expected to be roughly the same as in the first half, at around HKD 100 billion. Looking ahead, the long-term macro factors supporting the Hong Kong stock market's liquidity have not changed. The situation of ample funds but limited high-quality Assets is likely to continue.

HSBC Global Research points out that the net Inflow of northbound funds this year accounts for only a small portion of the 'excess cash' held by mainland residents, suggesting that southbound Inflows will continue.

For the upcoming market performance, SPDBI (Shanghai Pudong Development Bank International) states that as the market repeatedly reaches new highs, the valuation of the Hong Kong stock market has significantly recovered, and the room for further expansion may be limited. Future upward momentum will rely more on the growth of corporate profits. However, the expected profit growth of the Hang Seng Index for this and next year is low, and the impact of tariff policies will gradually be reflected in fundamentals. Coupled with the strong economic resilience in the first half, this may weaken short-term policy expectations. Therefore, investors need to identify industries and individual stocks that are less affected by tariffs, have lower correlation with the economic cycle, and can benefit from AI development to achieve stronger profit growth, in order to achieve better returns.

Sinolink Securities states that looking ahead to the second half of the year, the overall direction for the Hong Kong stock market remains bullish, with a resilient 'structural' bull market. The renminbi and southbound funds remain the strongest support for the Hong Kong stock market. The reshaping of the international landscape and the unsustainable debt cycle eroding the credibility of the US dollar are long-term issues, and the underlying logic supporting the narrative of a long-term weak US dollar remains. With the economic impact of the previous fiscal cycle gradually declining, the weakening of hard data such as US employment and consumption has become a fact, while the new fiscal cycle is still at its beginning, with uncertainties regarding its pace and lagging economic effects. From a long-term perspective, the Hong Kong stock market is looking forward to the 'third revaluation' of renminbi Assets.