Southward Fund "Sweeps Goods" Hong Kong Stocks Southward Capital Inflow Exceeds 20 Billion For Three Consecutive Days, Investors Dispute "Pricing Power" Logic

On January 20, the net inflow of funds from the southward movement of the Hong Kong stock connect exceeded HK $20 billion, the third consecutive day of net purchases of more than HK $20 billion. On the same day, the Hang Seng Index rose 1.04% for the fifth consecutive trading day, while the Hang Seng technology index soared 5.28% with the help of funds from the south.

However, on the other side of the crazy influx of funds from the south, the market fell into a certain divergence. On that day, the Hong Kong stock ETF changed the previous day's upward trend, touched the intraday limit, and finally closed down by 9.88%; the Hong Kong stock connect 50 ETF fell by 6.7%; the Shanghai Stock connect ETF fell by 5.6%; the Hang Seng ETF and Hang Seng Index ETF both fell more than 4%.

Behind the different trends, there seems to be some controversy over whether the turbulent southward capital can shake the existing valuation system of Hong Kong stocks.

For the reason of the crazy influx of funds, the industry generally believes that market capital flows to more undervalued Hong Kong stocks. Photo by Gan Jun

Going southward to continuously "copy the bottom" of Hong Kong stocks

"A shares are too high, while Hong Kong shares are cheap." An investor who has been paying close attention to the Hong Kong stock market for a long time lamented to the reporter.

With the undervalued value, the listing of new economic targets, and the fact that most of the newly established public offerings can be allocated to Hong Kong stocks in the past two years, southbound funds are becoming more and more active.

According to the statistics of 21st century economic report, as of January 20, southbound funds have been traded for 21 consecutive trading days. With the help of funds from southbound, the trend of Hong Kong stock market is gradually booming. Wind data shows that since 2021, the Hang Seng Index has increased by 10.03%, while the cumulative growth of Hang Seng technology index has reached 17.32%.

For the reason of the crazy influx of funds, the industry generally believes that market capital flows to more undervalued Hong Kong stocks.

On January 20, Chen Gang, CO director of the research department of aide securities and futures, told reporters of the 21st century economic report that behind the massive inflow of southward funds into Hong Kong stocks, it was formed by the joint stimulation of three specific factors.

"First, the valuation is cheap. In 2020, the Hong Kong stock market obviously lags behind the global mainstream market and has obvious valuation advantages. After experiencing the excess return of the mainland's core consumer sector, funds begin to reflect the investment demand for high-quality and undervalued targets. Second, for institutions and funds, at this time, the valuation and allocation of most A-share core assets have reached a certain height. After the management scale rises again, it is necessary to find more core assets to upgrade and allocate. Many of the scarce core assets in the mainland are in Hong Kong stocks, which has a strong demand for allocation. Third, RMB appreciation. " Chen Gang said.

In Chen Gang's view, as the subject matter of RMB assets denominated in Hong Kong dollar, in addition to reflecting the appreciation of RMB exchange rate, it should also reflect a certain amount of valuation premium repair.

However, it is worth mentioning that there are still some controversies about how long the southward inflow can last and whether it will impact the core pricing logic of the Hong Kong stock market.

In Chen Gang's view, in the current macro environment, (Hong Kong listed) enterprises have a certain expectation of profit recovery. In addition, the money supply is still in a relatively loose stage for the time being, so the general trend of funds chasing undervalue will still be maintained. Judging from the inflow of funds from Hong Kong stock connect going south this year, as well as the target trend of clearing up foreign capital including China Mobile and SMIC international, it can be seen that southbound capital is indeed the main driving force of pricing power. This return tide will be more obvious in this year's Hong Kong stock market.

However, some people in the industry believe that it is difficult to make a more clear judgment on the dynamics of the fund going south.

Wan Yongqiang, director of Zhitong finance and Economics Research Center, told reporters: "whether the (substantial net inflow of funds from the South) continues is a dynamic issue. In the short term, the main factor is that new funds from the mainland are looking for more cost-effective targets. Once the inflow is filled in, the inflow will be slowed down. In the long run, A-share is still the main battlefield. Considering the complexity of capital sources and key nodes It's going to explode

In his view, whether the current peak inflow of southward funds depends on the situation of newly issued funds. Wan Yongqiang also bluntly pointed out: "it is a general trend that the influence of mainland funds (in Hong Kong stocks) will gradually increase."

Technology and consumer stocks become hot targets

To be specific, the 21st century economic reporter noted that the capital flow of Hong Kong stock connect to the South mainly flows to three areas, including technology stocks, consumer sector and some Chinese state-owned enterprises with low value and high cost performance.

Take January 20 as an example, while the inflow of funds continues to flow southward, the head technology stocks Alibaba rose by 8.5%, Ali health rose by more than 17%, meituan rose by more than 9%, Tencent and Jingdong both rose by more than 3%; in the consumer sector, Haidilao, jiumaojiu, Kangshifu and zhouheiya rose by 3.14%, 1.84%, 1.94% and 1.37% respectively; among the state-owned enterprises with low value and high cost performance, CGN power and Zoomlion Heavy Industries, etc, They increased by 1.63% and 3.4% respectively.

Specifically, on January 20, the top ten buying amount of Hong Kong stock connect were Tencent holdings, Xiaomi group-u, SMIC international, China Mobile, Minhua holdings, Hong Kong stock exchange, CNOOC, meituan-w, SIMORE international and Cinda bio, respectively. The net capital inflow on that day reached 5.095 billion yuan, 3.810 billion yuan, 1 billion yuan, 919 million yuan, 852 million yuan, 821 million yuan and 785 million yuan, respectively RMB 558 million, RMB 374 million and RMB 324 million.

"On the whole, undervalued, scarce core assets and some a + H's high-quality targets will be the preferred plate of funds going south." Chen Gang said.

"Southbound capital has a better understanding of mainland assets. At present, the proportion of mainland companies in the Hong Kong stock market has increased significantly. The continuous inflow of funds from southward will bring changes to the investment philosophy of Hong Kong stocks. Whether Tencent holdings, Haidilao and Jiumao, which are relatively scarce in a shares, or securities dealers and Chinese state-owned enterprises which are obviously undervalued compared with a shares, all reflect the rarity of investment institutions in the mainland Lack of understanding of core assets. " Said the investor.

CEN Zhiyong, a securities strategist at bailihao, also pointed out: "when the amount of capital held by the company is increased, it is conducive to mastering the right to speak. The valuation difference between Hong Kong shares and a shares may gradually narrow."

Under the background of the gradual increase in the discourse power of southbound funds, what investment opportunities Hong Kong stocks will have in 2021 has also become a topic of considerable concern to the market. In the view of many industry insiders, there are still certain investment opportunities in the core assets such as consumption, innovative drugs and new energy, which are also booming in the A-share market.

Wan Yongqiang believes that in 2021, the overall market of Hong Kong stocks is still structural. "In 2021, the overall opportunity should be big consumption, which may surpass the whole market. On the one hand, its moat is deep enough, and its consumption attribute is strong enough to resist a series of emergencies. In addition, CXO pharmaceutical enterprises benefit from the transfer and growth of foreign orders after public health events Sex is strengthened. In the first quarter of 2021, I think the market will continue in the photovoltaic and automobile sectors at the end of 2020. "

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