CICC: Inflows of southbound funds slowed down this week, with a net inflow of 23.2 billion Hong Kong dollars.

Southbound funds slowed down inflows this week, with a net inflow of 23.19 billion HKD (compared to 82.25 billion HKD last week), averaging 5.8 billion HKD per day (compared to 16.45 billion HKD last week). The Hong Kong stock connect was closed on Friday this week. At the individual stock level, the most increase in holdings were seen in Alibaba, Tencent, Xiaomi, etc., while reductions were seen in Sinopec, COUNTRY GARDEN, New China Life Insurance, etc. In terms of foreign capital, according to EPFR data (as of Wednesday this week): 1) Active foreign outflows narrowed, with outflows of 120 million USD in A shares (compared to 230 million USD outflows last week), outflows of 370 million USD in Hong Kong stocks and ADRs (compared to 690 million USD outflows last week); the most outflows were seen in funds focused on China, emerging markets, etc. 2) Passive foreign outflows increased significantly, with outflows of 2.55 billion USD in A shares (compared to 520 million USD outflows last week), and a reversal to outflows of 2.26 billion USD in Hong Kong stocks and ADRs (compared to 360 million USD inflows last week); the outflows were mainly from funds focusing on the Chinese market. In global markets, there was an outflow in US stocks and emerging markets, while developed Europe and Japan saw inflows. US stocks saw outflows of 1.414 billion USD this week (compared to inflows of 26.819 billion USD last week), inflows of 8.356 billion USD in developed Europe (compared to outflows of 4.974 billion USD last week), inflows of 2.927 billion USD in the Japanese stock market (compared to outflows of 1.617 billion USD last week), and outflows of 2.429 billion USD in emerging markets (compared to inflows of 26.227 billion USD last week). The escalation of trade tensions may delay long-term foreign capital inflows, but unless extreme circumstances such as financial restrictions occur, the pressure for continued significant outflows is lower than before. Foreign capital allocation at the end of February was at 6.5% (compared to 13% at the beginning of the trade tensions in 2018 and 15% at the beginning of 2021), which is 1.2 ppt lower than the benchmark index. Recently, there have been discussions about potentially delisting Chinese companies listed in the US. In the face of delisting risks, large-cap companies already listed in Hong Kong have relatively manageable risks. If there are short-term liquidity gaps causing shocks, it may provide better re-entry opportunities. In contrast, risks associated with small-cap companies, especially those that have not yet returned to Hong Kong, are worth paying attention to. This article is from the WeChat public account "Kevin Strategy Research"; GMTEight Editor: Wenwen.