Why do large inflows and large outflows alternate when southbound funds had a net inflow of 19.8 billion Hong Kong dollars yesterday?

April 2 was the last trading day before the Hong Kong stock market’s short holiday, and southbound capital saw a significant net inflow of HK$19.8 billion on the day.

Since the beginning of the year, the trend of southbound capital returning has been evident, but the trading pace has fluctuated considerably, with large inflows and large outflows alternating.

Huaxia Fund said: On the one hand, buy-sell volatility reflects an environment of frequent changes in overseas monetary policy and geopolitical conditions, as well as uncertainty around the repair of corporate earnings, which has increased divergence in investors’ views. On the other hand, especially in several record-breaking large net inflows and outflows in early March, the same period also saw major fluctuations in the RMB exchange rate, and the net inflows/outflows were mainly driven by the Tracker Fund of Hong Kong (i.e., the盈富基金), which may have been caused by arbitrage behavior.

In terms of structure, southbound capital’s increased positions show a “barbell” characteristic of “technology + cycle” or “technology + dividends.” In February and March, the two main sectors where southbound capital net inflows were concentrated were information technology (such as Tencent and Semiconductor Manufacturing International Corporation, among others) and discretionary consumption (such as Alibaba and Meituan, among others), displaying the feature of “building positions at low levels even against the market trend.”

With Hong Kong stocks trading at a discount relative to A-shares, this may be an important reason for attracting southbound capital to build positions. Individual investors without a Hong Kong stock or Stock Connect account can diversify their allocation through related industry theme ETFs: Huaxia Hang Seng Internet ETF (513330.SH), Huaxia Hang Seng Stock Connect Central SOE Dividend ETF (513910.SH), which are listed on the mainland and support T+0 trading.

The Daily Economic News

(Editor: Dong Pingping)

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