Southbound funds net bought over HKD 220 billion in the first quarter, and institutions say Hong Kong stocks may see a recovery rally.

Originally published by: China Securities Journal

Xinhua Finance, Beijing, April 1 (Reporter Wu Yuhua). Since the beginning of this year, southbound capital has continued to increase its holdings in the Hong Kong stock market, making it an important source of incremental funds for the market. Data show that, as of March 31, in the first quarter, southbound capital’s cumulative net inflow exceeded HKD 220 billion.

Supported by southbound capital’s continued increase in holdings in the first quarter, the Hong Kong stock market has shown a certain level of resilience. As of the close on March 31, the Hang Seng Index fell cumulatively by 3.29% in the first quarter, the Hang Seng Tech Index fell cumulatively by 15.70%. Stock-specific performance diverged, and internet technology stocks saw a clear correction.

Institutional analysts believe that, given relatively high uncertainty in the short term, Hong Kong stocks may continue to be restrained by a decline in overseas risk appetite. If external risks do not worsen further, Hong Kong stocks are expected to see a recovery rally as a result of a resonance among the execution of unlockings, earnings validation, and capital returning.

Southbound capital continues to increase holdings in the Hong Kong stock market

Since the beginning of this year, southbound capital has flowed heavily into the Hong Kong stock market, making it an important source of incremental funds for the market.

Data show that, as of March 31, southbound capital had a net inflow of HKD 220.947 billion in the first quarter. Among them, on March 9, the single-day net inflow was HKD 37.213 billion, setting a new intraday record. Among the 56 trading days of southbound capital activity in the first quarter, there were 37 days with net inflows, accounting for more than 60%. In terms of monthly inflow amounts, in the first three months of this year, southbound capital maintained monthly net inflows. In February, the net inflow exceeded HKD 90 billion; the net inflows in January and March both exceeded HKD 60 billion.

Zhang Yusheng, chief strategy analyst at Everbright Securities, said that although the net buy amount of southbound capital in March decreased compared with the previous month, it still indicates a bottom-fishing intent.

Looking at southbound capital’s holdings, data show that as of March 30, the number of shares held by southbound capital reached 581.110 billion shares, up by 17.374 billion shares compared with the start of 2026. The market value of holdings was HKD 6.10 trillion, down by HKD 0.04 trillion compared with the start of 2026. Based on the net inflow amount up to March 30, southbound capital currently shows some unrealized loss.

By industry, the market value of southbound capital holdings in financials, information technology, and discretionary consumption industries ranks near the top, at HKD 1.585684 trillion, HKD 1.132111 trillion, and HKD 794.161 billion, respectively. In addition, southbound capital’s holdings in the energy industry have a market value of over HKD 600 billion.

By individual stocks, southbound capital’s holdings in Tencent Holdings exceed HKD 540 billion; holdings in CNOOC exceed HKD 300 billion; and holdings in China Construction Bank, Alibaba Group Holding–W, Industrial and Commercial Bank of China, and China Mobile are all above HKD 200 billion. Holdings in HSBC Holdings, Xiaomi Group–W, Bank of China, Semiconductor Manufacturing International Corporation, Meituan–W, and China Shenhua are all above HKD 100 billion.

Data show that as of March 30, since the beginning of this year, southbound capital’s top increases in holdings by number of shares were in Country Garden, Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and SInno? Sunac? (融创中国), at 3.048 billion shares, 1.608 billion shares, 1.214 billion shares, 1.192 billion shares, and 0.915 billion shares, respectively. In addition, Tencent Holdings, CNOOC, and Alibaba Group Holding–W, which have larger market caps, were also increased by southbound capital, with the number of shares added of 0.84 billion shares, 3.76 billion shares, and 0.34 billion shares, respectively.

As of March 30, over the past month, southbound capital’s top increases in holdings by amount were in the information technology, discretionary consumption, and energy industries, with net buy amounts of HKD 27.846 billion, HKD 14.465 billion, and HKD 10.540 billion, respectively. By individual stocks, over the past month, Tencent Holdings, Xiaomi Group–W, and CNOOC received favor from southbound capital, with net buy amounts ranking near the top at HKD 16.643 billion, HKD 6.509 billion, and HKD 5.607 billion, respectively. In addition, Pop Mart and Meituan–W saw net purchases exceeding HKD 3 billion from southbound capital over the past month.

Turbulence and adjustment in Hong Kong stocks in the first quarter

Against the backdrop of southbound capital’s continued inflow into Hong Kong stocks, from a market perspective, the Hong Kong stock market demonstrated a certain resilience in the first quarter.

As of the close on March 31, the Hang Seng Index, Hang Seng China Enterprises Index, and Hang Seng Tech Index respectively fell cumulatively by 3.29%, 6.05%, and 15.70% in the first quarter. The main indices all recorded declines, with the Hang Seng Index showing relatively stronger performance.

In terms of industry sectors, in the first quarter, most sectors in Hong Kong stocks rose. Energy, conglomerates, and industrials led the gains, rising by 24.07%, 9.12%, and 7.63%, respectively. Information technology, consumer discretionary, and telecom services led the declines, falling by 18.61%, 12.50%, and 2.97%, respectively.

By individual stocks, among Hang Seng Index constituent stocks, more than half of the stocks rose. Sun Hung Kai Properties and CNOOC both rose by more than 30% cumulatively. PetroChina Company Limited and Contemporary Amperex Technology (CATL) both rose by more than 20% cumulatively. JD Logistics, Wuxi? (药明康德), China Shenhua, Xinyi Glass, and WH Group (万洲国际) all rose by more than 18% cumulatively. Trip.com Group–S fell by more than 31% cumulatively. Kuaishou–W, Semiconductor Manufacturing International Corporation, Shenzhou International, and Pop Mart all fell by more than 23% cumulatively. Baidu Group–S/W, Tencent Holdings, Xiaomi Group–W, and others all fell by more than 19% cumulatively. It can be seen that stock performance diverged clearly in the first quarter, and internet technology stocks underwent a noticeable adjustment.

Data show that as of March 31, the Hang Seng Index’s trailing price-to-earnings ratio was 12.14x, lower than valuations in other markets.

Zhang Qiyao, chief strategy analyst at Industrial Securities, said that compared with overseas markets, Hong Kong stocks currently have lower valuations, and the impact from liquidity shocks may be relatively smaller.

Hong Kong stock market is expected to recover

Regarding the Hong Kong stock market, Yi Qiong, chief macroeconomist at Guotai Junan Securities? (华泰证券首席宏观经济学家易峘), said that the key variable for decision-making in the current Hong Kong stock market—the status of whether the Strait of Hormuz remains open to navigation—still remains difficult to determine, so investors are advised to remain cautious and reduce trading frequency when there is a lot of noisy information.

“Given that the pace of short-term geopolitical conflict is hard to grasp, Hong Kong stocks will show ‘follow-the-benchmark’ type fluctuations under peripheral disturbances.” Zhang Qiyao said. However, considering that the Hong Kong stock market has sufficiently priced in pessimistic expectations, pressure for downward revisions to earnings is alleviating, and the outlook for the Hong Kong stock market is not pessimistic. The risk-reward ratio for going long and going short in Hong Kong stocks may not be high at present; the best strategy is to “wait and see.” As to when the Hong Kong market will welcome a trend upward行情, the follow-up suggestions are to watch: clearer “anti-overcompetition” signals, whether the upcoming new-generation Hunyuan and DeepSeek big models can boost confidence in China’s technology, whether economic data can again exceed expectations, and when Hong Kong stock ETFs will turn to net inflows, etc.

“If external risks do not worsen further, the Hong Kong stock market is expected to show a recovery as a result of the resonance among the execution of unlockings, earnings validation, and capital returning.” said Yang Chao, chief strategy analyst at China Galaxy Securities.

Zhang Yusheng said that concerns about the peripheral geopolitical situation may gradually ease, and Hong Kong stocks’ risk appetite is expected to gradually recover. Coupled with the end of the annual report quiet period, share repurchases by leading companies will resume, providing support at the bottom for the market.

For specific allocation, Zhang Yusheng said that the key is to focus on configuration opportunities in the technology sector. At the index level, it is recommended to prioritize allocating to Hong Kong technology ETFs to capture the broader sector’s rebound. At the individual stock level, focus on the dual main lines of “AI + platform,” targeting core companies with faster commercialization rollout, stable cash flows, and valuations at relatively low levels.

Editor: Hu Chenxi

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