Notable changes in the global liquidity landscape after the holiday include: 1) EPFR data shows that as of this Wednesday (February 12), active foreign capital continues to flow out of the Chinese market, even slightly accelerating; 2) In terms of connectivity, the average daily trading volume of northbound funds remained basically flat compared to last week, while overall inflow of southbound funds increased, but turned to outflow on Tuesday and Thursday; 3) Global equities continue to see outflows, while bonds and money markets continue to see inflows; 4) Outflows from U.S. stocks have slowed down, while emerging markets are accelerating their outflows.
Last week, the Hong Kong stock market continued its strong performance after the holiday, even accelerating upward, with the Hang Seng Index approaching the previous high point from early October last year. The Hang Seng Tech Index, as the main force behind this round of rebound, has already reached a new high. So, which funds are the main drivers of this rise? What does the future hold? After comprehensive comparison, we found that:
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Inflows of southbound funds have increased, but divergences are also widening, reflected in the net outflows on Tuesday and Thursday. While southbound funds have flowed into Alibaba, they have flowed out of previously strong performers Xiaomi and Tencent. In total, since the Spring Festival holiday, the cumulative inflow of southbound funds has reached HKD 26.6 billion, which is comparable to the inflow scale of HKD 25.9 billion during the 924 market (late September to early October).
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Long-term foreign capital, as the main force of overseas funds, continues to flow out (accounting for 50-60% of the stock), indicating that long-term foreign capital is not the main force in this round of rebound, and reflects the relatively cautious and lagging characteristics of this type of capital. During the 924 period, active foreign capital saw a slight inflow for two weeks, with a scale of about USD 720 million; however, in this round of rebound, active foreign capital continues to flow out.
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Inflows of passive ETF funds have significantly accelerated (accounting for 15-20% of the stock), which we believe may be mainly from individual investors; the cumulative inflow in this round is about USD 1.94 billion, still far below the USD 9.75 billion inflow during the 924 period.
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Chart: Long-term foreign capital, as the main force of overseas funds, continues to flow out, while inflows of passive ETF funds have significantly accelerated.
<img src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/sz_mmbiz_png/ShbYhKZw7ia9KyE8ibtBPJsAIWdC7TUP2QpnZicIteVssic3xhUtXr0FJpJpickv4BdYoXYUNhzicv37SvJic56OVePfw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/sz_mmbiz_png/ShbYhKZw7ia9KyE8ibtBPJsAIWdC7TUP2QpnZicIteVssic3xhUtXr0FJpJpickv4BdYoXYUNhzicv37SvJic56OVePfw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw"/>
Source: EPFR, Wind, CICC Research Department
Chart: Active foreign capital in A-shares also continues to flow out.
<img src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/sz_mmbiz_png/ShbYhKZw7ia9KyE8ibtBPJsAIWdC7TUP2Qw6owvmRvAUZiccHAYf1wXvg6I5lxk9c5H3w2TEfUribvDPaEFe2mWNgQ/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/sz_mmbiz_png/ShbYhKZw7ia9KyE8ibtBPJsAIWdC7TUP2Qw6owvmRvAUZiccHAYf1wXvg6I5lxk9c5H3w2TEfUribvDPaEFe2mWNgQ/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw"/>
Source: EPFR, Wind, CICC Research Department
4) Transactional funds (such as hedge funds, accounting for 5-8% of the total) have received feedback from different clients and trading desks, indicating that there should also be inflows, and they may even be the main force in certain phases. However, due to a lack of data, accurate comparisons cannot be made.
Among the main types of funds mentioned above, compared to long-term foreign capital as the main force, the advantages of passive and transactional funds are their flexibility, while their disadvantages are that they are more speculative rather than long-term holding, thus experiencing faster fluctuations. It is precisely because of this characteristic that these two types of funds are also the main forces at the beginning of each rapid market rebound, while long-term foreign capital tends to lag behind. Therefore, we suggest that the behavior of passive funds and transactional funds should not be directly equated with the shifts in long-term foreign capital. Even the capital changes during the 924 market rally were like this (《Which foreign capital is the main inflow?》).
Chart: In the foreign capital profile we constructed for Hong Kong stocks, active value-type funds can account for 50-60% of foreign capital.
<img src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/sz_mmbiz_png/ShbYhKZw7ia9KyE8ibtBPJsAIWdC7TUP2Q1DAiavMicxSt1ffrv9le4wib1qmFTY9KyW5znXgWCicvbCfofU7ZqF9OnQ/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/sz_mmbiz_png/ShbYhKZw7ia9KyE8ibtBPJsAIWdC7TUP2Q1DAiavMicxSt1ffrv9le4wib1qmFTY9KyW5znXgWCicvbCfofU7ZqF9OnQ/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw"/>
Source: FactSet, CICC Research Department
Authors: Liu Gang, Zhang Weihuan from CICC, Source: Kevin Strategy Research (ID:gh_eb5af7e42aa1), excerpt from: &#34;CICC: Who is the main force behind the current rise in Hong Kong stocks?&#34;
Analyst Liu Gang CFA SAC Practicing Certificate No.: S0080512030003 SFC CE Ref: AVH867
Analyst Zhang Weihuan SAC Practicing Certificate No.: S0080524010002 SFC CE Ref: BSV497
Contact: Wang Muyao SAC Practicing Certificate No.: S0080123060036
Analyst Wu Wei SAC Practicing Certificate No.: S0080524070001
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CICC analyzed the sources of funds for the recent rise in Hong Kong stocks. Data shows that active foreign capital continues to flow out, while southbound capital inflows have increased but with discrepancies. Passive ETF fund inflows have accelerated, likely dominated by individual investors. Overall, long-term foreign capital is not the main force in this round of rebound, and trading-type funds may also have stage-specific inflows

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