Zhang Yidong: The Hong Kong stock market bull market is unstoppable

Investment Highlights

1. In March 2024, "The Spring of Hong Kong Stocks" is bullish on Hong Kong stocks. Since "9.24," Hong Kong stocks have entered a bull market, showing impressive performance in the global stock market despite some fluctuations.

2. Hong Kong stocks still have a high cost-performance ratio globally, and it is rational to understand the decline in the AH premium.

• The AH premium cannot be used to measure whether Hong Kong stocks are cheap; US dollar liquidity has a significant impact on the AH premium. If we only look at the range since 2022, one might think the AH premium is relatively low. However, it is important to note that this is due to the high overseas interest rates and the strengthening of the US dollar index from 2022 to 2024, which have greatly affected the liquidity environment for Hong Kong stocks. If we extend the time frame, the current AH premium is not at an extremely low level.

• Changes in the AH premium only indicate that both A-shares and Hong Kong stocks remain global valuation lowlands, still enjoying a high cost-performance ratio for allocation globally. Measured by risk premium, the risk premium of US stocks is still around 0, while the risk premium of the Hang Seng Index relative to the 10-year Chinese government bond yield is as high as 8%, and the risk premium relative to the 10-year US Treasury yield is around 5%. The risk premium of the CSI 300 Index relative to the 10-year Chinese government bond yield is 4.8%. In terms of price-to-earnings ratio, the forecasted price-to-earnings ratio for Hong Kong stocks is currently 10.7 times, which is at the 36th percentile since 2015.

3. The ecosystem of Hong Kong stocks has undergone a qualitative change, with southbound funds beginning to dominate the market, and it is rational to understand the so-called pricing power.

• From early 2025 to June 23, net inflows of southbound funds have exceeded 660 billion yuan, a figure close to the total inflow for the entire year of 2024, and far surpassing historical levels before 2024. The fundamental reason is that the ecological environment of the Hong Kong stock market has changed, with high-quality companies listing in Hong Kong, injecting fresh blood into the market, enhancing market vitality, and attracting inflows of southbound funds.

• Southbound funds are further spreading into sectors such as consumer and technology. Compared to 2024, the Hong Kong stock market in 2025 is more vibrant, with not only high dividends continuing to attract inflows but also new consumption and technology attracting more incremental funds. In 2024, the net inflow of Hong Kong Stock Connect was concentrated in representative sectors with high dividend companies such as finance, telecommunications, and energy, accounting for a total of 49%. In 2025, the net inflow of Hong Kong Stock Connect is concentrated in non-essential consumption and information technology, accounting for 56% and 14%, respectively, with these two sectors attracting a total of 70% of Hong Kong Stock Connect funds.

• It is not advisable to overly fixate on "competing for the pricing power of Hong Kong stocks," but rather to follow the trend of global allocation of Chinese wealth, deeply explore, and continuously reassess the long-term value of high-quality Hong Kong stocks.

1) Whether a certain type of fund has pricing power is a false proposition, as both domestic and foreign funds include many different types of capital, each with different risk preferences and asset allocation preferences. Instead of getting caught up in whether a certain type of fund has pricing power, it is better to return to the essence, focusing on which funds can better understand the fundamentals of the Chinese economy and listed companies and their future trends, so that these funds can achieve excess returns and pricing power in the medium to long term 2) In recent years, the voice of domestic insurance capital in the pricing of Hong Kong stock dividend assets has been continuously strengthened, significantly impacting the pricing of these assets. The reason lies in the fact that domestic insurance capital needs to allocate stable and high-quality assets in the face of China's continuously declining risk-free interest rate environment. Domestic insurance capital has a deeper understanding of the high dividend dividend assets related to central and state-owned enterprises in Hong Kong stocks, leading to continuous increases in holdings and a rising shareholding ratio. At the same time, this is also a process of gaining "pricing power," and this process is not so much about "seizing" as it is about taking what others abandon. These Hong Kong stock dividend assets are continuously recovering from a state of deep undervaluation, and their characteristics of stable operation, standardized development, and the ability to provide stable high dividends are being strategically reassessed.

1. In the future, as southbound funds further spread to industries such as consumer technology, the long-term and forward values of more high-quality Chinese companies are expected to be deeply explored and further reassessed.

IV. The Hong Kong stock bull market is undeterred; there may be fluctuations in early Q3 2025, but the upward trend remains unchanged.

• In the medium to long term, the strategic reassessment process of Chinese assets and the rise of Hong Kong will jointly drive the Hong Kong stock market into a long bull market.

1. Based on the long term, the status of Hong Kong as an international financial center will be consolidated and enhanced in the process of restructuring the international order. In the medium term, Chinese equity assets represented by Hong Kong stocks and A-shares are expected to become a safe haven for global wealth under the "stability in the East and fluctuations in the West" pattern.

2. The ecological environment of Hong Kong stocks has begun to undergo qualitative changes, ushering in a wave of listings of high-quality enterprises, thus attracting new investments. Since 2024, this round of IPO recovery in Hong Kong stocks driven by technology and new consumption provides qualitative support for the subsequent reassessment of Hong Kong stocks, as these new high-quality companies bring a sustainable fundamental basis for the reassessment of Hong Kong stocks.

3. This round of long-term bull market in the Hong Kong stock market essentially benefits from the wave of reassessment of Chinese assets. The reassessment of Chinese assets from a growth perspective highlights two key aspects: technology and new consumption. From 2025 onwards, the growth highlights of A-shares and Hong Kong stocks are similar, focusing on the emergence of new growth formats in the consumer sector and breakthroughs in the technology sector. The reassessment of Chinese assets from a value perspective still revolves around "China's special valuation," focusing on high-quality central and state-owned enterprise leaders with sustainable dividend capabilities, such as financial institutions and operators.

Report Body

I. In March 2024, the report "The Spring of Hong Kong Stocks" is bullish on Hong Kong stocks. Since "9.24," Hong Kong stocks have experienced a bull market, showing remarkable performance despite fluctuations in the global stock market.

In March 2024, we released the report "The Spring of Hong Kong Stocks: High Win-Rate Investment is the Way to Win," suggesting that Hong Kong stocks have gone through the "coldest winter" of confidence decline, and high win-rate assets may lead to the "spring return of Hong Kong stocks." Hong Kong stocks are expected to rise from the bottom, gradually returning from a bear market to a bull market over the past few years. In terms of liquidity environment, with U.S. Treasury yields peaking and the low interest rate environment in the mainland, the cost-effectiveness of high win-rate assets in Hong Kong stocks is becoming more prominent, and domestic funds will continue to increase their allocation to Hong Kong stocks. In terms of fundamental environment, the Chinese economy is stabilizing, and expectations are warming Although there are still many uncertainties, such as the U.S. elections, that disrupt market sentiment, the improvement in the funding and fundamental environment is the dominant variable for Hong Kong stocks in the short to medium term, as seen in 2016-2017 and 2019-2020.

Since 2024, the factors suppressing the Hong Kong stock market have continuously reversed, and Hong Kong stocks have performed brilliantly in the global capital market, with the Hang Seng TECH Index and Hang Seng Index ranking among the top in terms of growth. Even though since 2025, the U.S. has provoked so-called reciprocal tariff frictions globally, causing turmoil in the international order, the Hang Seng Index has gradually rebounded to near previous highs after experiencing short-term volatility, supported by strong internal factors.

After the "924" meeting in 2024, the "policy combination" has continuously improved the stock market and economic environment. For details, refer to "Global Strategy 2025 Annual Strategy: Innovating 'Already' Fire--2025 Investment Outlook" on December 15, 2024, "Reversal Logic Series II: Grasping the Essence through K-lines, the Chinese-style 'Slow Bull' with Large Increases, Large Volatility, and Large Differentiation" on October 16, 2024, and "Continue to Be Bullish on the Chinese Stock Market: Reversal Logic, Three Main Lines" on October 1, 2024.

With breakthroughs in the AI field by DeepSeek-R1 and the emergence of the robotics industry represented by Yushu Robotics, the internationalization of innovative drugs is accelerating, changing global investors' perceptions of Chinese technology and making them realize that Chinese technology has strong international advantages in many fields. For details, refer to "Riding the Waves: Rotation and Volatility under the 'Innovative Bull' Main Rising Wave" on February 17, 2025, and "Dawn of the New Order—2025 Overseas Mid-term Investment Strategy" on May 16, 2025.

The pain period of the transition between old and new economic drivers is gradually ending, and the cumulative effects of policies are driving structural highlights in Chinese consumption, especially in the new consumption and service consumption sectors, which continue to bring surprises. For details, refer to "Weathering the Storm, Actively Defending" on April 7, 2025.

II. Hong Kong Stocks Still Have High Cost Performance Globally, Rational Understanding of the Declining AH Premium Rate

(1) The AH premium should not be used to measure whether Hong Kong stocks are cheap; U.S. dollar liquidity has a significant impact on the AH premium.

As of June 19, 2025, the Hang Seng Shanghai-Shenzhen-Hong Kong Stock Connect AH Premium Index shows that A-shares are about 30% more expensive than H-shares. If we only look at the range since 2022, one might think that the AH premium is relatively low. However, it is important to note that this is due to the significant impact of high overseas interest rates and a strong U.S. dollar index on the liquidity environment of Hong Kong stocks from 2022 to 2024. A weaker U.S. dollar often means that funds flow from the U.S. to non-U.S. markets, leading to ample overseas liquidity, while a stronger U.S. dollar often means that funds flow back to the U.S. from non-U.S. markets, tightening overseas liquidity. Therefore, during the period of U.S. Federal Reserve interest rate hikes from 2022 to 2024, when the U.S. dollar strengthened and funds flowed back to the U.S., Hong Kong stocks, as an offshore market, were more significantly affected, resulting in a noticeable upward shift in the AH premium index compared to before 2022 If we extend the time frame, the current AH premium is not at a very low level. From 2015 to 2021, the premium of A-shares relative to H-shares fluctuated between 10% and 50%. From 2010 to 2014, the premium of A-shares relative to H-shares fluctuated between -10% and 40%.

Therefore, the AH premium cannot be used to measure whether Hong Kong stocks are cheap. The changes in the AH premium only indicate that A-shares and Hong Kong stocks are still global valuation pits, enjoying high cost-effectiveness in global allocation. Thus, one should not short Hong Kong stocks based on this indicator, as it would be a mistake of seeking a sword by carving a boat and dogmatism. The correct thinking should be that related A-shares are facing a rebound and upward revaluation.

(II) Hong Kong stocks are still a global valuation pit

Measured by risk premium, the risk premium of U.S. stocks is still around 0, while the risk premium of the Hang Seng Index relative to the 10-year Chinese government bond yield is as high as 8%, and the risk premium relative to the 10-year U.S. Treasury yield is around 5%. The risk premium of the CSI 300 Index relative to the 10-year Chinese government bond yield is 4.8%. In terms of price-to-earnings ratio, the forecasted P/E ratio of Hong Kong stocks is currently 10.7 times, which is at the 36th percentile since 2015.

III. The ecology of Hong Kong stocks has undergone a qualitative change, with southbound funds beginning to dominate the market, rationally understanding the so-called pricing power

(I) Technology and new consumption are reconstructing the phoenix tree, which will continue to attract global golden phoenixes

From early 2025 to June 23, the net inflow of southbound funds has exceeded 660 billion yuan, a figure close to the total inflow for the entire year of 2024, and far exceeds the historical levels before 2024. The fundamental reason is that the ecological environment of the Hong Kong stock market has changed, with high-quality enterprises listing in Hong Kong, injecting fresh blood into the market, enhancing market vitality, and attracting the inflow of southbound funds.

Since 2023, the People's Bank of China, the China Securities Regulatory Commission, and other departments have introduced multiple policies to support enterprises in listing in Hong Kong. These policy measures cover various aspects, including simplifying the listing process, enhancing transparency, and broadening financing channels, paving a more convenient and efficient path for mainland Chinese enterprises to list in Hong Kong The Hong Kong Stock Exchange is also actively responding, with the FINI (Fast Interface for New Issuance) reform significantly enhancing the capacity of the Hong Kong market. FINI effectively reduces capital occupation by shortening the settlement cycle, while significantly improving the transparency of the IPO process, thereby enhancing the Hong Kong stock market's capacity for IPOs.

Since 2024, the Hong Kong stock IPO market has gradually warmed up, with the technology and consumer sectors becoming the main driving forces behind this trend. Numerous rapidly growing technology companies and new consumer companies have chosen to list on the Hong Kong stock market, injecting new vitality and growth momentum into the market. In terms of market capitalization distribution, as of December 31, 2024, the total market capitalization of the consumer, technology, and healthcare sectors in the Hong Kong stock market reached HKD 18,847.81 billion, accounting for 54.5% of the total market capitalization of the Hong Kong stock market. By June 19, 2025, this proportion further climbed to 56.1%.

The Hong Kong stock market often attracts global funds only after high-quality assets are available; this round of restructuring in technology and new consumption will continue to attract global capital. Historically, after 2018, the Hong Kong stock market experienced a wave of new economy companies represented by the internet going public, as well as the return of leading Chinese concept stocks, resulting in a significant change in the market capitalization structure of the Hong Kong stock market, with a decrease in the proportion of financial and real estate sectors and an increase in the proportion of new economy companies. Although the overall market represented by the Hang Seng Index showed a range-bound trend from 2018 to 2020, high-quality assets in the new economy performed independently, with the Hang Seng TECH Index showing strong performance, significantly outperforming the broader market.

(2) Southbound funds further spread to consumer and technology sectors

Compared to 2024, the Hong Kong stock market in 2025 is more vibrant, with not only high dividends continuing to attract inflows but also new consumption and technology drawing in more incremental funds.

• In 2024, southbound funds, represented by long-term allocation funds such as insurance, preferred high dividends for net inflows. In 2024, the buying of Hong Kong Stock Connect was concentrated in the financial, information technology, non-essential consumer, telecommunications, and energy sectors, accounting for 25%, 25%, 20%, 15%, and 9% respectively. Among these, the representative sectors with high dividend companies, such as financial, telecommunications, and energy, accounted for a total of 49%, nearly half of the net inflow of Hong Kong Stock Connect in 2024.
• In 2025, on one hand, in the context of a low interest rate environment in mainland China, long-term allocation funds such as insurance will still be an important force in buying Hong Kong stocks; on the other hand, the enthusiasm of active investors in mainland China, including public funds, private equity, and speculative funds, to participate in Hong Kong stocks has significantly increased. 1) In 2025, the investment style of Hong Kong Stock Connect will lean more towards growth, with net inflows concentrated in non-essential consumer and information technology sectors, accounting for 56% and 14% respectively, with these two sectors collectively attracting 70% of the funds in Hong Kong Stock Connect

1. The proportion of Hong Kong stocks held by ordinary equity and equity-mixed funds continues to reach historical highs. Analyzing the heavy holdings of Hong Kong stocks in these funds reveals that quality growth stocks in technology and new consumption are attracting fund allocations.

(3) It is not advisable to overly fixate on "contesting the pricing power of Hong Kong stocks," but rather to follow the trend of global wealth allocation in China, deeply explore, and continuously reassess the long-term value of quality Hong Kong stocks.

The question of whether a certain type of capital has pricing power is a false proposition and should not be a point of contention. This is because both domestic and foreign capital includes many different types of funds, each with different risk preferences and asset allocation preferences. Instead of getting caught up in whether a certain type of capital has pricing power, it is better to return to the essence and focus on which funds can better understand the fundamentals of the Chinese economy and listed companies, as well as their future trends, so that these funds can achieve excess returns and pricing power in the medium to long term.

In recent years, the voice of domestic insurance capital in the pricing of Hong Kong stock dividend assets has been continuously strengthening, significantly impacting the pricing of these assets. From early 2022 to mid-2024, foreign capital has been continuously flowing out, and the Hong Kong stock market has been sluggish, especially with deep adjustments in new economy sectors such as the internet. However, during the same period, deeply valued central state-owned enterprises with high dividend assets have strategically increased their holdings by domestic insurance capital due to their low volatility and dividend characteristics, thus creating an independent market trend.

The reason lies in the fact that domestic insurance capital needs to allocate stable quality assets in the face of China's continuously declining risk-free interest rate environment. Domestic insurance capital has a deeper understanding of the high dividend assets related to central state-owned enterprises in Hong Kong stocks, leading to continuous increases in holdings and a rising shareholding ratio. At the same time, this is also a process of gaining "pricing power," and this process is not so much about "seizing" as it is about taking what others abandon. These Hong Kong stock dividend assets are continuously recovering from a state of deep undervaluation, and their stable operations, standardized development, and ability to provide stable high dividends are being strategically reassessed In the future, as southbound capital further spreads to industries such as consumer technology, the long-term and forward value of more high-quality Chinese companies is expected to be deeply explored and further reassessed.

IV. The Hong Kong stock market remains resilient in the bull market; there may be fluctuations in early Q3 2025, but the upward trend remains unchanged.

(1) In the medium to long term, the strategic reassessment process of Chinese assets and the rise of Hong Kong will jointly drive the Hong Kong stock market into a long bull market.

Based on long-term perspectives, Hong Kong's status as an international financial center will be consolidated and enhanced during the process of restructuring the international order. With the institutional advantage of "one country, two systems," Hong Kong will seize the historic opportunity of the motherland's high-quality development and peaceful rise, deeply integrate into the development of the Greater Bay Area, and extensively expand international financial openness and cooperation, promoting financial innovations such as WEB3 and stablecoins. Benefiting from this, the Hong Kong stock market will usher in a new "long bull" era—aligning with the internationalization wave of Chinese enterprises and the global asset allocation trend.

In the medium term, Chinese equity assets represented by the Hong Kong and A-share markets are expected to become a safe haven for global wealth under the "stability in the East and fluctuations in the West" pattern. Since 2025, whether it is the so-called reciprocal tariff frictions instigated by the United States globally or the recurring geopolitical risks, they have heralded the arrival of a turbulent period in the international order, while China has become a stable anchor for global economic growth. The Politburo meeting in April clearly pointed out the need to coordinate domestic economic work and international economic and trade struggles, using the certainty of high-quality development to respond to the uncertainties brought by drastic changes in the external environment.

Since the "9.24" market in 2024, the strategic reassessment process of Chinese assets has been steadily advancing, and the expectations for the Chinese stock market and economy have begun to form a positive feedback loop, stabilizing the stock market, the real estate market, and consequently stabilizing confidence and expectations, thereby driving the enhancement of consumption and investment willingness through the wealth effect.

We judge that the strategic reassessment process of Chinese assets and the rise of Hong Kong will jointly drive the Hong Kong stock market into a long bull market.

• First, the ecological environment of the Hong Kong stock market has begun to undergo qualitative changes, welcoming a wave of listings of high-quality enterprises, thus attracting new capital inflows from both domestic and foreign sources. Since 2024, this round of IPO recovery in the Hong Kong stock market, driven by technology and new consumption, provides fundamental qualitative support for the subsequent reassessment of the Hong Kong stock market. These new high-quality companies bring a sustainable fundamental basis for the reassessment of the Hong Kong stock market.
• Second, this long-term bull market in the Hong Kong stock market essentially benefits from the reassessment wave of Chinese assets. The reassessment of Chinese assets from a growth perspective highlights two key aspects: technology and new consumption. From 2025 to the present, the growth highlights in both A-shares and Hong Kong stocks are emerging growth formats in the consumer sector and breakthroughs in the technology sector. The reassessment of Chinese assets from a value perspective still revolves around "China's special valuation," focusing on high-quality central state-owned enterprises with sustainable dividend capabilities, such as financial institutions and operators.

Note: This article has been abridged.

Authors: Zhang Yidong, Li Yanlin, Source: Zhang Yidong Strategy World, Original Title: "[Xingzheng Zhang Yidong (Global Strategy) Team] The Hong Kong Stock Market Remains Resilient in the Bull Market" Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk