Core Insights - The Hong Kong stock market has reached a milestone with cumulative net purchases from southbound funds exceeding 50 billion HKD [1][3] - Southbound funds have shown record-breaking net inflows of 1.31 trillion HKD in 2023, marking a significant increase of over 60% compared to the previous record year [2][4] - There has been a notable shift in investment strategy from a growth-oriented "offensive" approach to a high-dividend "defensive" stance among southbound funds [6][8] Investment Trends - Southbound funds have been consistently net buying Hong Kong stocks for 16 consecutive trading days, with only 3 days of net outflows in the past 23 trading days [3] - The financial sector has been the primary focus for southbound funds, accounting for 39% of net purchases since 2025, with significant holdings in financial, information technology, and consumer discretionary sectors [6][8] - The shift in strategy is exemplified by the movement of funds from Alibaba to China National Offshore Oil Corporation, indicating a preference for stable, high-dividend stocks [7][8] Market Performance - Major indices in the Hong Kong market, such as the Hang Seng Index and Hang Seng Tech Index, have seen year-to-date gains exceeding 30%, with the Hong Kong Innovative Drug Index rising over 80% [1] - The overall valuation of Hong Kong stocks remains low, with the Hang Seng Index and the Hang Seng China Enterprises Index trading at price-to-book ratios below 1 [4][5] - High dividend yields in sectors like energy and finance are attracting long-term investors, including insurance and public funds [5][6] Sector Rotation - Recent trends show a reduction in holdings in high-growth sectors like pharmaceuticals and technology, while traditional industries such as banking, oil and gas, and telecommunications are experiencing increased investment [8] - The current market environment has led to a more conservative risk appetite among investors, favoring high-dividend stocks over high-growth, high-valuation stocks [8][9] - Analysts suggest that while the focus is on defensive assets, there may be future opportunities in undervalued growth stocks that have been overlooked [9]

Core Viewpoint - CITIC Securities maintains a "Buy" rating for Hong Kong Exchanges and Clearing (HKEX) with a target price of 543 HKD, supported by expectations of liquidity from the Federal Reserve's interest rate cuts, continuous inflow of southbound funds, and valuation advantages [1] Group 1: Market Conditions - The Hong Kong stock market is expected to maintain high activity levels in Q4 due to three main factors: the Federal Reserve's shift in monetary policy providing liquidity support, continuous inflow of southbound funds, and significant valuation advantages [2][3] - Since April, HKEX has shown a recovery in overall valuation after a significant decline, driven by high average daily trading volume and sustained buying from southbound funds [1] Group 2: Financial Projections - For Q3 2025, the company is projected to achieve revenue and other income of 79.11 billion HKD, a year-on-year increase of 47.26%, and a net profit attributable to shareholders of 48.24 billion HKD, up 53.38% year-on-year [2] - Revenue forecasts for 2025, 2026, and 2027 are expected to grow by 27.94%, 5.93%, and 1.17% respectively, reaching 286.25 billion HKD, 303.21 billion HKD, and 306.75 billion HKD [2] Group 3: Valuation and Investment Appeal - As of October 10, the PE (TTM) ratio for HKEX is 36.49x, which is at the 72.15%, 71.85%, and 47.43% percentiles for the past 1, 3, and 5 years respectively, indicating a potential for further valuation recovery [1] - The Hang Seng Index's PE-TTM is approximately 11.95x, placing it at the 64th percentile over the past 20 years, highlighting the relative valuation advantage of Hong Kong stocks compared to the CSI 300's 14.24x [3]

Core Viewpoint - CITIC Securities maintains a "Buy" rating for Hong Kong Exchanges and Clearing (HKEX) with a target price of HKD 543, citing liquidity expectations from the Federal Reserve's interest rate cuts, continuous inflow of southbound funds, and valuation advantages as key factors supporting the high activity level in the Hong Kong stock market in Q4 [1] Group 1: Market Conditions - The Hong Kong stock market has shown a recovery in valuation since April, driven by high average daily trading volume and sustained buying from southbound funds [1] - As of October 10, 2025, HKEX's PE (TTM) stands at 36.49x, positioned at the 72.15%, 71.85%, and 47.43% percentiles over the past 1, 3, and 5 years respectively [1] - The company is expected to achieve high year-on-year growth in Q3 earnings, with projected revenues of HKD 79.11 billion (up 47.26%) and net profit of HKD 48.24 billion (up 53.38%) [2] Group 2: Future Projections - Revenue forecasts for 2025, 2026, and 2027 are projected to be HKD 286.25 billion, HKD 303.21 billion, and HKD 306.75 billion respectively, with year-on-year growth rates of 27.94%, 5.93%, and 1.17% [2] - Net profit forecasts for the same years are HKD 179.02 billion, HKD 194.44 billion, and HKD 198.57 billion, reflecting year-on-year growth rates of 40.88%, 8.62%, and 2.13% [2] Group 3: Supporting Factors - The Federal Reserve's shift in monetary policy, including interest rate cuts, is expected to enhance liquidity in emerging markets, providing support for the Hong Kong stock market [2] - Southbound funds have seen a net inflow exceeding HKD 1 trillion since the beginning of 2025, driven by the low valuation of Hong Kong stocks and liquidity spillover from the A-share market [3] - The valuation of the Hang Seng Index remains attractive, with a PE-TTM of approximately 11.95x, which is at the 64% percentile over the past 20 years, highlighting the "valuation pit" effect of Hong Kong stocks compared to the CSI 300's 14.24x [3]

Core Viewpoint - Foreign capital is continuously increasing its investment in China, with southbound funds experiencing explosive growth, reaching a record net inflow of over 940 billion HKD as of August 18 this year [1][4][7]. Group 1: Southbound Fund Inflows - As of August 18, southbound funds have accumulated a net inflow of 940.3 billion HKD, surpassing the total for the entire year of 2024, marking a historical high [7]. - It is projected that the total net inflow of southbound funds for the year could exceed 1.2 trillion HKD, which is expected to support the upward trend of the Hong Kong stock market [2][8]. - Recent data shows that southbound funds have been actively buying into Hong Kong stocks even during market pullbacks, with a record single-day net purchase of 358.76 billion HKD on August 15 [7]. Group 2: Investment Strategies - Current investment strategies for southbound funds focus on two main areas: undervalued, high-dividend assets and technology-related assets [2][12]. - Institutional investors are generally optimistic about high-dividend stocks in the Hong Kong market, emphasizing the importance of value and growth expectations in their investment principles [13][14]. - The investment approach includes a "barbell strategy," balancing between low-valuation, high-dividend assets and high-growth, high-volatility technology stocks [12][14]. Group 3: Market Performance and Comparisons - The Hang Seng Index and Hang Seng Technology Index saw significant gains earlier in the year, with maximum increases of 33% and 49% respectively, but have underperformed compared to the A-share market since mid-June [4][5]. - The recent performance divergence between A-shares and Hong Kong stocks is attributed to the latter being in a period of intensive half-year report releases, leading to a more cautious investment sentiment [10][11]. - Despite the recent underperformance, the long-term value of Hong Kong stocks remains attractive due to their unique assets and lower valuations compared to A-shares [11][14].

Group 1 - During the "May Day" holiday, Chinese assets experienced significant gains, with the Hang Seng Index rising by 1.74% and the Hang Seng Tech Index increasing by 3.08% as of May 2 [1] - The Hang Seng Tech Index has seen a two-week consecutive rise, with a total increase of 7.2% during this period [1] - The offshore RMB appreciated against the USD, rising by 687 basis points to 7.2011 [1] Group 2 - As of May 6, 2025, the Hang Seng Tech Index (HSTECH) showed a slight decline of 0.01%, with mixed performance among constituent stocks [1] - Meituan-W (03690) led the gains with an increase of 4.08%, while NIO-SW (09866) was the biggest loser [1] - The Hang Seng Tech ETF (513380) saw a 3.01% increase, with trading volume reaching 3.54 billion and a turnover rate of 7.07% [1] Group 3 - The Hang Seng Tech ETF's latest price-to-earnings ratio (PE-TTM) is 21.06, indicating it is at a historical low compared to the past year [2] - The Hong Kong dollar has been strengthening, nearing the 7.75 peg limit, prompting interventions from the Hong Kong Monetary Authority [2] - There is a notable trend of capital flowing into Hong Kong's tech and internet sectors amid ongoing adjustments in the real estate market [2] Group 4 - Despite recent gains, the valuation advantage of Hong Kong tech stocks remains, with potential catalysts in the tech sector and policy signals from the Two Sessions [2] - The Hang Seng Tech ETF covers top-quality tech leaders in Hong Kong, focusing on companies highly related to technology themes [2]