Core Insights - Southbound capital has significantly increased its presence in the Hong Kong stock market, with net inflows exceeding 730 billion HKD this year, marking a historical high for multiple indicators [1][2]. Group 1: Market Performance - The Hong Kong market has shown strong performance in the first half of the year, with the Hang Seng Index rising by 20% and the Hang Seng Tech Index increasing by 18.68%, ranking among the top global indices [2]. - In the first half of the year, southbound capital recorded a net inflow of 731.19 billion HKD, the highest for the same period historically, second only to the full-year figure of 807.87 billion HKD in 2024 [2]. - Southbound capital has shown a "buy the dip" strategy, with 30 trading days seeing net inflows exceeding 10 billion HKD, even on days when the Hang Seng Index declined [3]. Group 2: Trading Activity - The trading volume of southbound capital has increased significantly, with its share of the total trading volume in the Hong Kong market rising from 2.98% in 2015 to over 43.12% in the first five months of this year [4]. - In April, southbound capital recorded a net inflow of 166.67 billion HKD, the second-highest monthly inflow in history [2]. Group 3: Policy Support - The increase in southbound capital allocation to Hong Kong stocks is supported by policy measures, including the expansion of eligible stocks for the Stock Connect programs and the extension of tax incentives until 2027 [4]. Group 4: Sector Performance - The banking sector has seen significant increases in holdings by southbound capital, with major banks like China Construction Bank and HSBC among the top beneficiaries [6]. - The Hang Seng Index for mainland Chinese banks rose by 25.94% in the first half of the year, outperforming other key indices [6]. Group 5: Valuation Opportunities - "A+H" bank stocks are attracting southbound capital due to their lower valuations and higher dividend yields in the Hong Kong market compared to their A-share counterparts [7]. - Among 15 "A+H" bank stocks, 13 have A-share premium rates exceeding 10%, indicating a strong preference for H-shares due to their relative value [7].