Hong Kong stock market increasingly driven by mainland China investors: Hang Seng Indexes

Hong Kong stock market's gains this year have been supported by inflows from mainland Chinese investors, who are driving turnover higher, according to a study by index compiler Hang Seng Indexes (HSI) on Wednesday.

Southbound inflows under the Stock Connect scheme, which allows qualified mainland Chinese investors to trade eligible shares listed in the city, have doubled year to date to HK$321 billion (US$41 billion) compared with the whole of 2023, it said.

This has helped the Hang Seng Composite Index, a gauge which covers 95 per cent of the city's market capitalisation, rise 6 per cent so far this year. The index is poised to extend its gains for a fifth consecutive month in June.

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Reflecting the shift in investor dynamics, the Hang Seng Stock Connect Hong Kong Top Shareholding 50 Index (HSHKS50) has surged by 15.9 per cent this year, outperforming the benchmark Hang Seng Index by about 10 percentage points, HSI said.

The Connect Hall at the Hong Kong stock exchange. Photo: Jonathan Wong alt=The Connect Hall at the Hong Kong stock exchange. Photo: Jonathan Wong>

"The strong rally, which began in late January, came amid strong inflows from southbound investors," HSI said. "Notably, if the monthly net inflows remained positive by the end of June, it would mark the 12th consecutive month of positive net inflows for southbound investment."

Southbound turnover has dramatically increased into the Hong Kong market over the past decade, according to the HSI report.

Mainland Chinese investors accounted for 16 per cent of the exchange's average daily turnover in the first five months of this year versus 1.6 per cent in 2015.

Meanwhile, the southbound average daily turnover volumes reached nearly HK$19 billion in the first five months of 2024, an eight-fold jump from 2015, in sharp contrast with the exchange's total average daily turnover which shrank during the period.

The rising influence of southbound funds into Hong Kong has made it vital to understand mainland investors' preferences, according to the index compiler, which adjusted the weightings of the HSHKS50 Index constituents during the quarter ended March.

Financials had the biggest weighting at 31 per cent, followed by technology at 22 per cent and energy at 18 per cent. The energy sector saw the biggest increase in weighting from 13 per cent last year, while consumer discretionary declined by 3 percentage points.

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