(Bloomberg) — Mainland Chinese investors’ support for Hong Kong stocks is growing, helping to ease their valuation discount to onshore peers and indicating the city’s shares may rise further.
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Southbound trading accounted for about 46% of the average daily turnover in February, versus about one-third a year ago, according to Bloomberg-compiled data.
Fueled by optimism around DeepSeek and artificial intelligence, Chinese traders have snapped up mainland tech giants’ shares listed in Hong Kong and contributed to a strong rally this year. Their inflows have partially made up for foreign investors’ tepid interest in the region’s equities, and reduced onshore shares’ “A-H premium” over Hong Kong shares to 34% — lower than the 42% average for the past five years.
“Southbound capital has already seized the pricing power of Hong Kong stocks,” said Wang Sheng, an analyst at Shenwan Hongyuan Securities Co.
Read: Chinese Investor Buying Fuels Bullishness for Hong Kong Stocks
Mainland investors now own almost 12% of Hong Kong shares, compared to less than 5% at the end of 2020, according to Industrial Securities Co. data. In February, they bought HK$153 billion ($19.7 billion) of Hong Kong shares on a net basis, the second-largest monthly purchase on record.
Mainland investors have been taking advantage of the discount in Hong Kong-listed shares, due largely to their expectations of companies’ growth potential that are different than their foreign counterparts, Wang said.
Donald Trump’s tariff threats continue to weigh on Asian stock markets, illustrated by the declines Friday after he unveiled additional levies on Chinese imports. But southbound inflows could put a floor on the market at a time when volatility is surging. The city’s stocks are typically seen as proxies for external risks and foreign investor sentiment.
“It helps to mitigate some of the lackluster foreign flows,” said Xin-Yao Ng, an investment director at abrdn plc. “And it does help that the Hong Kong stocks are generally cheaper than the A-shares.”
Still, Ng cautioned that mainlanders’ investments can be volatile.
“I wouldn’t bet on it to be sustained capital support for the Hong Kong market,” he said.
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