Core Insights - Since the second quarter, southbound capital has continued to flow into Hong Kong stocks, with a cumulative net inflow of HKD 292.5 billion in Q2, leading to a historical high in the market value share of southbound holdings in Hong Kong stocks [3][6] - The proportion of Hong Kong Stock Connect holdings increased from 19.0% at the end of Q1 to 20.7% at the end of Q2, while the foreign capital share decreased from 62.8% to 60.4% [3][6] - From a stock perspective, foreign capital still dominates most sub-sectors in Hong Kong stocks, but with the inflow of southbound capital, the marginal pricing power of southbound investors is significantly increasing in sectors such as consumer services, household products, automotive, commercial services, durable consumption, biopharmaceuticals, medical device services, energy, and banking [3][6] Industry Analysis - The report highlights that the southbound capital's marginal pricing power is notably rising in various sectors, including consumer services, household products, automotive, commercial services, durable consumption, biopharmaceuticals, medical device services, energy, and banking [3][6][13] - The data indicates that foreign capital still holds a dominant position in most sub-sectors of Hong Kong stocks, but the increasing southbound capital is changing the dynamics of pricing power in these industries [3][6][12]

Group 1 - The report introduces a "two-step" framework to analyze the funding landscape of the Hong Kong stock market, categorizing funds into long-term and short-term foreign capital, domestic capital, and Hong Kong capital [1][8][9] - Despite a marginal decline in the proportion of foreign capital, it continues to dominate the Hong Kong stock market, accounting for over 60% of the total funding, with stable foreign capital holding approximately 11.6 trillion HKD and flexible foreign capital around 5.2 trillion HKD as of May 13, 2025 [19][22][24] - The report highlights a significant increase in the proportion of southbound funds, which have gained marginal pricing power in the Hong Kong market, with their market value share rising from 8% in September 2020 to 20% by May 2025 [24][25][38] Group 2 - The trading behaviors of different funding types in the Hong Kong stock market exhibit clear differences, with stable foreign capital favoring long-term holdings, while flexible foreign capital tends to engage in short-term speculation [30][31] - Southbound funds show a lower turnover rate and a tendency to buy on dips, indicating a contrarian investment strategy, with a negative correlation between their net buying and the Hang Seng Index's performance [31][37] - Recent trends indicate that since March 2025, while foreign capital has been flowing out, southbound funds have been consistently flowing in, with a record net purchase of 356 billion HKD on April 9, 2025 [37][38]