Analysis of the Impact of Sustained Southbound Capital Inflows on the Hong Kong Stock Market

Based on the latest market data, I will systematically analyze the impact of sustained southbound capital inflows on the valuation and investment opportunities of the Hong Kong stock market for you.

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According to the latest data, southbound capital investment in the Hong Kong stock market reached a high of

in 2025, setting a record since the implementation of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect in 2014, and a substantial increase of compared to 2024 [1]. This data fully reflects the continuous attention and allocation demand of mainland capital to the Hong Kong stock market.

As of early January 2026, southbound capital has maintained a strong net inflow trend:

• January 7
  : Single-day net purchases amounted to approximately
  HK$9.178 billion
  , of which the Shenzhen-Hong Kong Stock Connect recorded a net inflow of HK$5.688 billion, and the Shanghai-Hong Kong Stock Connect recorded a net inflow of HK$3.490 billion [2]
• January 9
  : The total turnover of actively traded stocks under the Hong Kong Stock Connect reached
  HK$36.462 billion
  , with a net purchase amount of
  HK$691 million
  [3]

Southbound capital shows an obvious concentration on leading targets, with the main net inflow targets including:

Stock	Net Inflow (HK$100 million)	Net Inflow Ratio	Capital Trend
Tencent Holdings	19.53	14.71%	Sustained Inflow
Xiaomi Corporation-W	16.34	22.31%	Net Purchases for 7 Consecutive Days
Tracker Fund of Hong Kong	15.68	11.46%	Accumulate on Dips
Southern Hang Seng Technology	9.38	12.52%	Sustained Inflow
BYD Company Limited	4.93	13.30%	Stable Inflow

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Sustained southbound capital inflows have driven a significant valuation recovery in the Hong Kong stock market:

Index	1-Year Return	Current P/E Ratio	Historical Percentile
Hang Seng Index	+48.13%	10.2x	Low
Hang Seng China Enterprises Index	+45.51%	8.5x	Low
Hang Seng Technology Index	+52.3%	22.4x	Median

Despite the Hang Seng Index soaring nearly 30% in 2025, the current price-to-earnings ratio is still around

, at a historical low, and significantly lower than other stock markets in the Asia-Pacific region [4]. This means that:

1. Valuation Advantage Remains
   : The Hong Kong stock market still enjoys an obvious valuation discount compared to A-shares and U.S. stocks
2. Attract Incremental Capital
   : The low-valuation environment will continue to attract allocation from southbound capital and foreign capital
3. Room for Valuation Recovery
   : There is still an opportunity for double growth from profit growth combined with valuation expansion

Zhou Hanying, QDII Fund Manager of Invesco Great Wall, pointed out that southbound capital played a

role in some popular industry tracks in 2025 [5]. Looking ahead to 2026, market pricing power is expected to shift from being dominated by southbound capital to a relatively balanced pattern between southbound capital and foreign capital.

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It is widely believed in the industry that Hong Kong stock investment is shifting from “

” to “”:

Stage Characteristics	2025	2026
Driving Factor	Valuation Recovery	Profit-Driven
Investment Strategy	Track Beta	Stock-Specific Alpha
Uptrend Feature	Universal Rally	Structural Differentiation
Stock-Picking Requirement	Correct Track	Performance Realization

Many public fund managers judge that the beta opportunity of universal stock rallies within Hong Kong stock industries may weaken in 2026, and the upward momentum will come more from

rather than valuation expansion [5].

Based on southbound capital flows and market prospects, it is recommended to focus on the following areas:

• Tencent Holdings: Southbound capital continues to increase positions, with high certainty of performance recovery
• Xiaomi Corporation-W: Net purchases for 7 consecutive days, with its smart car business providing new growth momentum
• BYD Company Limited: Leading new energy vehicle company, benefiting from the recovery of industry prosperity

• China Life Insurance: Net inflow ratio of 11.86%, with attractive valuation
• Tracker Fund of Hong Kong, Hang Seng China Enterprises ETF: Capital has obvious willingness to accumulate on dips

• CSPC Pharmaceutical Group: Net inflow ratio as high as 29.42%
• 3SBio: Net inflow ratio of 25.52%, with a single-day increase of 7.16%

• Real Estate: Single-day increase of 1.36%, the best performer
• Industry: Increase of 1.32%, benefiting from economic recovery

The following risk factors should be noted:

• Crowded Trading Risk
  : Excessive capital concentration in popular tracks may face adjustment pressure
• Performance Falsification Risk
  : Companies that only tell stories without actual performance realization face valuation pullback
• Liquidity Volatility
  : The pace of southbound capital inflows may slow down
• External Uncertainty
  : Geopolitical changes and U.S. Federal Reserve policy adjustments

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1. Continuous Improvement in Capital Liquidity
   : Southbound capital has become the most important source of incremental capital in the Hong Kong stock market, with inflow scale hitting a record high in 2025
2. Valuation Recovery Continues
   : Despite a large increase, the valuation of Hong Kong stocks is still at a historical low, with medium- to long-term allocation value
3. Investment Strategy Shift
   : From “Lazy Win Track Beta” to “Select High-Quality Alpha”, performance becomes the core stock-picking criterion
4. Structural Opportunities as Main Focus
   : The market will show obvious differentiation in 2026, so select targets with high performance certainty

Investment Type	Recommended Strategy
Long-Term Allocation	Hong Kong stock index funds (Tracker Fund of Hong Kong, Southern Hang Seng Technology)
Thematic Investment	Focus on leading companies in booming tracks such as AI, semiconductors, and innovative drugs
Value Investment	Focus on high-dividend, low-valuation financial and real estate sectors
Trading Opportunities	Seize volatility opportunities brought by sustained southbound capital inflows

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[1] Zhitong Finance Network - Hong Kong Stock Connect Capital Flow Statistics (https://finance.sina.com.cn/stock/hkstock/ggscyd/2026-01-12/doc-inhfyxew7704523.shtml)
[2] CLS.com - Southbound Capital Net Purchases Near HK$9.2 Billion (https://www.cls.cn/detail/2250796)
[3] Securities Times Network - List of Stocks with Continuous Net Purchases via Hong Kong Stock Connect (https://www.stcn.com/article/detail/3584145.html)
[4] China Investment Corporation - 2026 Hong Kong Stock Market Investment Outlook (https://www.chiefgroup.com.hk/cn/financial/media/dp?id=13476)
[5] Securities Times Network - New Strategies of Public Funds for Southbound Investment in 2026 (https://www.stcn.com/article/detail/3585097.html)