Industrial Securities Strategy: Who is Increasing Holdings in Hong Kong Stocks Behind the Big Rise? How Sustainable Is It?

Based on the breakdown by Hong Kong Stock Exchange custodian institutions, since May (5.4–5.6), the Hang Seng Index rose by 3.3%, and the Hang Seng Tech Index increased by 5.1%. During this period (excluding ETFs), net southbound outflows totaled HKD 3.54 billion; international intermediaries added HKD 4.06 billion; China-based intermediaries added HKD 0.1 billion; and Hong Kong local intermediaries added HKD 1.29 billion.

In terms of industry, southbound buying was more concentrated in gold and precious metals, oil and natural gas, and industrial engineering. The main areas of outflow were software services, information technology equipment, and pharmaceuticals and biotech. International intermediaries increased positions mainly in semiconductors, information technology equipment, and specialized retail, while cutting positions mainly in banks, household appliances and consumables, and media and entertainment.

In terms of individual stocks, southbound funds bought more of Pop Mart, Tencent, Xiaomi, China Life, and CNOOC. The main sell-offs were in China Mobile, Zijin Mining, Alibaba, China Hongqiao, and Cinda Biotech. International intermediaries mainly increased positions in Alibaba, China Mobile, InnoScience, Zijin Mining, and China Hongqiao, and reduced positions more in Tencent, Xiaomi, Pop Mart, Kuaishou, and Bilibili.

Some changes and trends worth paying attention to in recent industry and stock positioning include: 1) Foreign capital is the main long positioning behind the rebound in Hang Seng Tech, while domestic capital has continued to reduce exposure to internet stocks; 2) The bottoming-and-consolidation phase in innovative drugs is due to southbound funds switching from adding to cutting positions, mainly focused on Cinda and CSPC; 3) Although the stock price has rebounded from the bottom, both domestic and foreign capital sold Pop Mart; 4) Domestic and foreign capital together increased positions in semiconductors; 5) Foreign capital continued to reduce positions in CATL.

For foreign capital, according to EPFR data, this week passive foreign investors shifted to reducing positions by USD 380 million. Behind this, there may be realization behavior by flexible funds such as hedge funds after they accumulated substantial unrealized gains in April. On the other hand, active funds have returned to Hong Kong stocks for the first time in nearly two months, with a scale of USD 42 million (global funds continue to increase allocations, mainly as overseas China funds have flowed back).

Regarding the sustainability of foreign capital inflows, there are two points worth noting. First, in 2019–2021, China funds flowed into Hong Kong stocks at a scale of nearly USD 18 billion, far exceeding other product types. This suggests that overseas funds focused on investing in China are the key to “scaling up” foreign capital inflows. Second, since 2023, every increase in China fund holdings appears to correspond to market highs (end of January this year, early October last year, mid-March last year, early October 2024, mid-May 2025, and late June 2023). Therefore, the lack of sustained positive returns has led to weaker ongoing inflow momentum.

On the domestic side, southbound funds sold during the rebound in share prices, and ETFs with high institutional ownership are still being net redeemed (mainly cutting technology positions), reflecting that confidence in Hong Kong stocks still needs to be restored.

Risk Warning

This is compiled solely from publicly available information and does not involve any investment advice or research views.

(Source: Industrial Securities)