Massive Buying Surge Exceeds HKD 1 Trillion in Southbound Flows

On September 2, southbound investors net purchased HKD 9.281 billion, pushing year-to-date net inflows past HKD 1 trillion—a record since the connect mechanism’s inception. Cumulatively, these investors have acquired nearly HKD 4.7 trillion in Hong Kong equities, also marking an all-time high.

As mainland allocations have intensified, southbound trades now account for an ever-larger portion of overall turnover. Improved liquidity driven by these sustained inflows has bolstered both valuations and trading activity. Looking ahead, a renewed return of overseas capital may reinforce this upward momentum.

Bao Xiaohui, Chairman of Changli Asset, told Securities Times that the resurgence of market confidence is the primary magnet for southbound flows. In 2025, the Hang Seng Index repeatedly set fresh highs and delivered one of the strongest performances globally, while spotlight stocks such as Xiaomi Group (01810.HK), Pop Mart (9992.HK), and Lao Pu Gold (2280.HK) continually achieved record peaks. This pronounced “profit effect” has attracted a steady stream of mainland funding, creating a virtuous cycle of inflows.

Bao also emphasized that Hong Kong’s historically low valuations and comparatively high dividend yields, when measured against A-shares, make it particularly appealing to investors seeking stable, long-term returns amid declining domestic interest rates. Policy support for Hong Kong’s development as an international financial center and the reopening of its IPO market have further energized sentiment. Bao Jingang, Fund Manager and Senior Researcher at Rongzhi Investment, noted that Hong Kong’s strategic positioning for RMB internationalization and the return of Chinese ADRs are prompting both domestic and international investors to jointly reassess its value, cementing southbound interest as a key long-term allocation choice.

Wind data show that as of August 26, southbound holdings stood at approximately HKD 5.94 trillion, representing over 13% of the market’s total capitalization. Moreover, the share of southbound trading in overall turnover has climbed above 45% this year, up from 34.63% in 2024. As mainland capital gains greater pricing influence, Hong Kong stocks are aligning more closely with domestic risk appetites and economic fundamentals. This shift is narrowing the valuation gap between A-shares and Hong Kong listings and enhancing cross-border market integration.

Despite their growing impact, southbound investors do not possess absolute pricing power. Hong Kong’s securities lending framework allows other overseas participants to borrow and sell shares short—an instrument not yet available to southbound funds—enabling those investors to significantly sway near-term price movements.

Since August, volatility has tempered inflows, with notable net outflows recorded on several trading days. Bao expects southbound funds to maintain a net buying stance but at a moderated pace, particularly as the Shanghai Composite’s recent decade-high rally has generated a stronger near-term profit effect, drawing some allocations back to the mainland.

Meanwhile, Mingze Investment Fund Manager Gao Anjing observed that the revaluation of RMB assets and Hong Kong’s valuation discount continue to underpin southbound interest. Given Hong Kong’s standout performance among major global markets this year, the reinforced profit dynamic suggests that southbound inflows may remain robust.