CICC: Who are the main players and incremental funds in the Hong Kong stock market?

Since the beginning of this year, the Hong Kong stock market has remained active and has outperformed global markets, while also exhibiting a highly structured rotation trend. This performance is attributed to the asset revaluation narrative led by DeepSeek at the beginning of the year, as well as the continuous emergence of structural opportunities in new consumption and innovative pharmaceuticals, which are directly related to the active liquidity. From a funding perspective, there has been inflow of funds driven by global "de-dollarization" narratives and diversification investment demands, as well as continuous inflow of southbound funds seeking higher returns due to a lack of investment opportunities domestically, such as insurance funds in the first half of the year and the narrative of activating deposits and entering the market in the second half. This is specifically reflected in:

1. The overall market activity has significantly increased: the average daily trading volume from the beginning of the year to today has reached HKD 257.9 billion, nearly doubling from HKD 131.8 billion in 2024;

2. Southbound funds have significantly increased, with individuals potentially replacing insurance funds after the third quarter: the average daily inflow has reached HKD 6.42 billion, nearly double the average daily inflow of HKD 3.47 billion for the entire year of 2024. As of the end of October, the cumulative inflow has reached HKD 12.6 trillion, setting a new annual historical high. After the third quarter, within southbound funds, the proportion of public funds, especially ETFs, has significantly increased, indicating that individual investors under the "deposit migration" narrative may have replaced insurance funds as the main force in the first half of the year;

Chart: Since the beginning of the year, the Hong Kong stock market has outperformed A-shares and U.S. stocks, but the rotation effect is evident.

Source: Wind, CICC Research Department

Chart: Southbound funds have surged significantly this year, with a cumulative inflow of HKD 12.6 trillion setting a new annual historical high.

Source: Wind, CICC Research Department

1. There has been a partial return of overseas funds, with Asia-Pacific funds being standard but underweight in Europe and the U.S.: EPFR data shows that since the beginning of the year, passive funds have significantly flowed in, and recently, overseas active funds have returned to the Chinese market for the first time in nearly a year, but this is not sustained. Especially since July, the allocation ratio of some regional funds to the Chinese market has significantly increased, even approaching standard allocation, but there is still significant differentiation and no consensus has formed.

Chart: Long-term value-oriented overseas funds have not yet returned to the Hong Kong stock market, but passive funds continue to flow in.

![](https://mmbiz-qpic.wscn.net/sz_mmbiz_png/fzHRVN3sYsibNm9CMZ2iaKUguWAvFtYTba6IPt1NPk5kyvTGIyWkWMiaw4grAWw4fkl23fwoILYlof3d6dibHzsVCg/640? Data Source: EPFR, Wind, CICC Research Department

Chart: However, there are recent signs of active funds flowing back into A-shares.

Data Source: EPFR, CICC Research Department

We conducted a detailed analysis of the composition of funds in the Hong Kong stock market in our report "Who is Leading the Hong Kong Stock Market? The Liquidity Landscape of Hong Kong Stocks" published in mid-July. Combining the latest disclosures of the third quarterly reports from domestic public funds and the latest developments in overseas funds allocating to the Chinese market, we analyze the new changes in the funding landscape. Who are the driving forces behind the market? How much room is there for the future? What are the influencing factors?

Foreign Capital Trends: Overall Improvement but Increased Differentiation, Asia-Pacific Funds Return to Standard Allocation for China but European and American Funds are Low

With the increased attractiveness of Chinese assets and some demand for "de-dollarization," foreign capital has shown overall improvement. Since the beginning of this year, as the market has remained active, foreign capital has also improved overall. EPFR data shows that from the beginning of the year to date, overseas active funds (which are more representative of long-term capital) have still seen a net outflow of USD 9.74 billion from Hong Kong stocks, but the outflow scale has narrowed compared to the same period in 2024 (USD 11.25 billion); especially since the second half of the year, the weekly outflow of active funds has averaged USD 150 million, significantly slowing down from the first half (USD 270 million). Meanwhile, passive fund inflows have been strong: from the beginning of the year to date, inflows into Hong Kong stocks have reached USD 26.94 billion, doubling compared to the same period in 2024 (USD 12.81 billion). This is also reflected from an allocation perspective. As of the end of September, the proportion of overseas active funds allocated to the Chinese market has risen to a year-to-date high of 7.2%; the current under-allocation has narrowed from the year-to-date low in July (-1.61ppt) to -1.39ppt. We believe that the main reasons for this positive change come from two aspects: first, the attractiveness of Chinese assets has increased and outperformed globally; second, under the narrative of "de-dollarization" triggered by uncertainties in Trump’s policies, some overseas investors have a demand for diversified investments.

However, structural differentiation remains significant and has even further intensified, with Asia-Pacific funds returning to standard allocation while European and American funds are increasingly under-allocated. However, just as Chinese assets are not attractive to all overseas investors, "de-dollarization" is not a universally applicable narrative; otherwise, we would not see an increase in overseas funds flowing into U.S. Treasury bonds in the second half of the year, and the scale of global investors holding U.S. Treasury bonds has also reached a new high. This indicates that the "de-dollarization" and Chinese allocation narratives, as two sides of the same coin, may be more concentrated among certain investors and have not formed a widespread consensus, leading to a deepening of this "binary split." If we further break down the changes in allocation ratios among different regional investors, we can find clues: apart from Japanese funds, the allocation of Asia-Pacific funds to the Chinese market has rapidly increased and is now close to standard allocation; In stark contrast, the underweighting of emerging market funds and global funds excluding the United States continues to deepen, exceeding 2 percentage points.

Chart: Overall, major types of global funds are currently underweighting Chinese stocks by about 1.39 percentage points.

Source: EPFR, China International Capital Corporation Research Department

Chart: Among them, Asia-Pacific funds excluding Japan have basically returned to the benchmark allocation for China.

Source: EPFR, China International Capital Corporation Research Department

Chart: In stark contrast, the underweighting of the Chinese market by emerging market funds continues to deepen.

Source: EPFR, China International Capital Corporation Research Department

Chart: Global funds excluding the United States are similarly underweighting the Chinese market by about 2.6 percentage points.

Source: EPFR, China International Capital Corporation Research Department

Foreign Capital Outlook: After the Asia-Pacific funds return to benchmark allocation, attention shifts to whether profits will be realized, while European and American capital inflows focus on fundamentals and policy catalysts.

Against the backdrop of overall capital inflows and improved allocation ratios, the degree of differentiation among different foreign capital is increasing. So what might the outlook for foreign capital be?

We believe that on one hand, the threshold for capital and hedge fund inflows in the Asia-Pacific region is relatively low, but they have basically returned to benchmark allocation or even overweight. In the short term, significant increases will require catalysts, and attention should also be paid to whether short-term event-driven changes may instead prompt some profit-taking pressure On the other hand, despite the significant increase in long-term foreign capital from Europe and the United States this year, actions remain relatively slow, with some underweight levels even deepening to 2.6 percentage points, which objectively indicates that the threshold for their return is higher (《How to Characterize and Analyze Foreign Capital?》).

Recent events such as the Federal Reserve's "hawkish rate cut" and Sino-U.S. tariff negotiations will also bring some "new changes" to the flow of foreign capital.

► The Federal Reserve's hawkish rate cut has hindered "easing trades," leading to stronger U.S. Treasury yields and the dollar, making it difficult to provide support in the short term. Theoretically, after entering a rate cut cycle, the narrowing interest rate differential between the U.S. and other countries, along with a temporary weakening of the dollar, could alleviate the outflow pressure of funds from emerging markets. However, this does not mean that a rate cut by the Federal Reserve will necessarily drive foreign capital back into the Chinese market, as the interest rate differential is not an absolute determining factor for capital inflows. Historically, during the Federal Reserve's rate cut cycle in 2019, despite the relatively weak domestic fundamentals and the disturbances caused by Sino-U.S. trade frictions, foreign capital continued to flow out, and the RMB depreciated against the dollar; in contrast, in 2017, even during the Federal Reserve's rate hike cycle, foreign capital still maintained inflows. Moreover, at the October FOMC meeting, the Federal Reserve's "hawkish rate cut" cooled expectations for a rate cut in December, making it even more difficult to effectively boost the return of foreign capital to Hong Kong stocks. At the FOMC meeting, Powell clearly stated that there is increasing internal disagreement within the Federal Reserve regarding whether to continue rate cuts in December[1], which directly led to the hindrance of "easing trades," with U.S. Treasury yields and the dollar index rising, which will temporarily affect foreign capital (《The Federal Reserve's "Next Step"》);

► The Sino-U.S. tariff negotiations reached an agreement, but the degree of easing is not significantly beyond expectations. Historically, unexpected risk events often influence foreign capital's risk appetite and allocation exposure through sentiment, as seen during the early stages of the pandemic in early 2020 and the escalation of the Russia-Ukraine situation in March 2022, both of which experienced temporary outflow pressure. As an offshore market, Hong Kong stocks are often more significantly impacted by such shocks. When "reciprocal tariffs" were first introduced in early April this year, this characteristic was evident, with overseas funds rapidly deepening their underweight in the Chinese market, and the allocation ratio gradually recovering only after the frictions eased.

At the beginning of October, Sino-U.S. trade frictions suddenly escalated again, causing short-term market volatility; by the end of the month, both sides reached a consensus through economic and trade consultations in Kuala Lumpur. Some investors expect further easing of frictions and even hope that subsequent summit meetings could boost risk appetite, thereby attracting foreign capital back. However, we take a cautious stance: on one hand, as discussed in《The Impact and Response to Tariff Re-escalation》, the unexpected nature and scope of the tariff escalation in October differ from the initial introduction in April, and the impact on the market has weakened; on the other hand, although the tariffs have avoided significant escalation, the current outcome has not significantly exceeded market expectations. In fact, we pointed out at the beginning of the month that the likelihood of reaching a short-term agreement is not only not small but rather quite high. After all, from a game theory perspective, both sides cannot bear the repeated systemic escalation, which may serve as a reminder of the ongoing risks for some investors.

► Finally, the domestic fundamentals are key and dominant in determining the medium- to long-term flow of foreign capital. A review of the capital flows since the launch of the Shanghai-Hong Kong Stock Connect in 2014 reveals that two long-term and sustained foreign capital inflow cycles (2016-2017, 2020-2021) share a core commonality: China's economic growth is strong and significantly outperforms other major global markets These two phases not only correspond to the strengthening of the RMB exchange rate but also drive a significant rise in core assets in the Chinese market, confirming that "fundamental advantages are key to attracting long-term foreign capital inflows." However, since August, major economic data excluding external demand, such as real estate, investment, and consumption, have shown significant weakness, and expectations for strong policy support are not robust. The Fourth Plenary Session and the 14th Five-Year Plan focus more on medium- to long-term technological and industrial structural efforts, so the renewed weakness in fundamentals may be one of the main reasons for long-term capital's wait-and-see attitude.

Chart: Foreign capital continued to flow out during the Fed's rate cuts in 2019, while it flowed in during the rate hike cycle in 2017.

Source: EPFR, Wind, CICC Research Department

Chart: Unexpected risk events can also disrupt market and funding sentiment.

Source: IIF, CICC Research Department

Chart: Domestic fundamentals have a greater impact on whether overseas capital can return.

Source: Wind, CICC Research Department

Southbound Trends: Active Public Funds Are Not the Main Force, Residents Entering the Market "Relay" Institutions After the Third Quarter

Since the beginning of the year, southbound capital has seen strong inflows, with a cumulative inflow of HKD 1.26 trillion, far exceeding the full-year level of HKD 807.8 billion for 2024, and setting a new annual inflow record since the launch of the Stock Connect, becoming an important force supporting the Hong Kong stock market. Meanwhile, the pricing power of southbound capital has continued to improve marginally and structurally: in terms of trading volume, the daily average trading volume of southbound capital as a percentage of the main board trading volume of Hong Kong stocks has risen from about 25% at the end of 2024 to nearly 40% at its peak. Although it has slightly retreated currently, it remains stable at around 30%, showing a significant increase compared to the end of last year, highlighting its growing influence on the Hong Kong stock market Specifically regarding the proportion and changes of various types of southbound investors,

Chart: The current daily trading volume of southbound funds accounts for about 30% of the Hong Kong stock main board.

Source: Wind, CICC Research Department

1. Active public funds: The proportion of Hong Kong stock holdings has increased from 25.7% at the end of last year to 30.8%, but they are not the main force. The total scale of such funds has increased from approximately RMB 1.44 trillion (about HKD 1.56 trillion) at the end of last year to around HKD 2.12 trillion, resulting in an increase in Hong Kong stock allocation of about HKD 200-250 billion since the beginning of the year. However, considering the index price factors (the Hang Seng Index and Hang Seng TECH Index both rose by about 30%), the net increase of Hong Kong stocks for such funds this year is approximately HKD 80-100 billion, contributing about 10-12% of the southbound total of approximately HKD 1.26 trillion since the beginning of the year. It is worth mentioning that the proportion of public funds in the overall southbound holdings has significantly increased, rising from 15.4% in the second quarter to 18.3%, but the proportion of active public funds has slightly decreased to 9.1%. Therefore, neither the active public funds since the beginning of the year nor in the third quarter are the main force in southbound investments;

Chart: As of Q3 2025, active equity public funds hold RMB 522.8 billion in Hong Kong stocks, but the proportion of fund stock holdings has decreased to 30.8%.

Note: Data as of September 30, 2025

Source: Wind, CICC Research Department

1. Passive public funds: The overall proportion of Hong Kong stock holdings in public funds has increased from 30.4% at the end of last year to about 41.9% currently, with a significantly faster increase than active public funds. The total scale of such funds has rapidly increased from RMB 2.2 trillion (about HKD 2.4 trillion) at the end of last year to about HKD 3.95 trillion, resulting in an increase in Hong Kong stock allocation of about HKD 600 billion this year. Similarly, excluding stock price factors, the net increase of Hong Kong stocks since the beginning of the year is approximately HKD 330-380 billion. Excluding the active public funds, the net increase of Hong Kong stocks for these funds (mainly ETFs) is about HKD 250-320 billion, contributing about 25% to the southbound total. Meanwhile, this portion of funds has also rapidly increased its proportion in the overall southbound holdings from 6.2% in the second quarter to 9.2% in the third quarter. Based on the growth of mainland investment in Hong Kong stock ETFs, it is estimated that the subscription scale of this portion of off-market ETFs in the third quarter approached HKD 220 billion, which is closely related to the "deposit migration" of residents entering the market Also the main force of southbound funds in the third quarter;

Chart: The inflow scale of investable Hong Kong stock ETFs has reached a historical high since the beginning of the year, reflecting the enthusiasm of individual investors for off-market subscriptions.

Source: Wind, China International Capital Corporation Research Department

Chart: The proportion of active public funds in southbound investments has slightly decreased, but the proportion of other public funds (mainly ETFs) has rapidly increased.

Source: Wind, China International Capital Corporation Research Department

1. Insurance funds: Since insurance funds do not disclose their holdings quarterly like public funds, this data mainly comes from our communication with insurance clients. Overall, although there are differences in the absolute proportion of Hong Kong stock holdings among institutions, the increase in the proportion of Hong Kong stocks in equity investments from the beginning of the year to now is generally in the range of 3-5%. Based on the scale of 4.1 trillion RMB in total stock and securities investments by insurance funds at the end of last year, and considering the fluctuations in index, we estimate that this net increase is about 130-200 billion HKD. In terms of new premiums, assuming the total premium increase for this year remains at 3 trillion RMB (about 3.3 trillion HKD), and given the requirement that 30% of new premiums be invested in A-shares, assuming the investment proportion in Hong Kong stocks is about 1/4-1/5 of A-shares, then the scale of new premiums invested in Hong Kong stocks from the beginning of the year to now is about 200-250 billion HKD. Combining both, the increase in insurance funds' allocation to Hong Kong stocks is estimated to be around 350-450 billion HKD, contributing 25-35% to southbound investments. Furthermore, from our discussions, it has been learned that since the third quarter, the allocation ratio of insurance funds to Hong Kong stocks has actually declined, which can also be evidenced by the recent weakness in high dividends, especially in the banking sector, and the rise in the AH premium of the sector.

2. The remaining approximately 25-30% is relatively difficult to estimate, more belonging to individual investors who directly open Hong Kong Stock Connect trading and private equity funds, etc.

Chart: The AH premium of the banking sector once dropped to 117% mid-year, but has recently rebounded to around 125%, near the "invisible bottom."


Data Source: Wind, CICC Research Department

IV. Outlook for Southbound: Institutional "bullets" are not as plentiful as imagined, while individual potential and variables are significant

For the institutional part, we have emphasized in several previous reports that the "bullets" of public funds and insurance institutions may not be as abundant as thought ("Who are the main players in the southbound market? Clues from public fund holdings in Q2"). In fact, this is indeed the case. Since the third quarter, the proportion of Hong Kong stock holdings in actively managed public funds has decreased from a peak of 32.4% in the second quarter to 30.8%, and its proportion of the overall southbound stock has also slightly decreased to 9.1%. The pace of insurance capital buying Hong Kong stock dividends has also slowed down, and the proportion of allocation to Hong Kong stocks has declined, especially as the AH premium in the banking sector has recently rebounded from a low of 117% to around 125%.

Looking ahead, we believe that the argument that the "bullets" of public funds and insurance institutions are not so abundant still holds. After all, both the maximum investment ratio for actively managed public funds in Hong Kong stocks cannot exceed 50%, and the requirement that 30% of new premiums be directed to A-shares objectively limits subsequent southbound increments. We estimate that the potential incremental amount from actively managed public funds and insurance capital is about HKD 450-600 billion. Specifically,

1. For actively managed public funds, assuming the proportion of Hong Kong stocks increases from the current 30.8% to 35% (the maximum investment ratio for funds not labeled "Hong Kong stocks" cannot exceed 50%), considering the current total scale of actively managed equity funds is about HKD 2.1 trillion, if the speed of new fund issuance maintains the current level, the subsequent space is about HKD 100-150 billion;

2. For insurance capital, assuming the proportion of Hong Kong stocks in equity investments increases to about 20% (an increase of about 3-5%), and considering that the annual new premium of HKD 3.3 trillion is invested at about 1/4 in A-shares, it is expected to bring about HKD 350-450 billion in incremental funds.

Chart: Estimation of incremental space for insurance capital in the southbound market

Data Source: Wind, CICC Research Department

However, the greater uncertainty this year may come from individual investors entering the market, mainly reflected in the changes in off-market subscriptions for Hong Kong stock ETFs. For individual investors, considering their investment in Hong Kong stocks is subject to certain restrictions (such as foreign exchange restrictions or the threshold for opening a Hong Kong stock connect account), the ETFs that can be invested in Hong Kong stocks are the main investment channel. As of the third quarter, the inflow scale of funds into Hong Kong stock ETFs that can be invested in was about HKD 240 billion (approximately HKD 260 billion) from January to September, with over HKD 220 billion inflowing in the third quarter alone.

► In the "deposit migration" of the third quarter, the proportion of funds flowing into Hong Kong stocks from the resident sector accounted for about 10% of the inflow into Chinese equity assets. Mainland individual investors allocate to Chinese equity assets mainly through three channels: directly opening accounts to invest in A-shares, subscribing to A-share ETFs, and Hong Kong stock ETFs, based on changes in non-bank deposits and the inflow of funds into ETFs (excluding price effects) A rough estimate of the allocation ratio of the household sector in the "deposit migration" to A-shares and Hong Kong stocks indicates that in the third quarter, non-bank deposits increased by approximately 2.26 trillion yuan, while A-share ETF funds flowed out by about 55 billion yuan, suggesting that the proportion of funds flowing into Hong Kong stocks accounts for about 10% of the funds directed towards Chinese equity assets.

► However, the decline in non-bank deposit data in September may indicate that the sustainability of "deposit migration" remains unclear. Non-bank deposits fell by about 1 trillion yuan compared to August, indicating that while deposits are still being "activated," the speed of "entering the market" is slowing down, which also shows that the pace of funds entering the market is influenced by market performance, creating a causal relationship.

► Under the baseline assumption, the inflow of funds from individual investors to Hong Kong stocks in the fourth quarter is estimated to be about 120 billion Hong Kong dollars. In October, the inflow of funds from individual investors to available Hong Kong stock ETFs was about 36 billion yuan (approximately 40 billion Hong Kong dollars). If we assume that the inflow speed remains the same as in October for the next two months, the potential inflow of funds from individual investors to Hong Kong stocks in the fourth quarter would be approximately 108 billion yuan (about 120 billion Hong Kong dollars); in an optimistic scenario, if the fourth quarter can maintain the situation of the third quarter, the inflow potential could be around 200 billion yuan (about 220 billion Hong Kong dollars); in a pessimistic scenario, if there is an external shock or similar disturbances, and the "deposit migration" enters a temporary "pause," it cannot be ruled out that individual investors may delay their inflow of funds to Hong Kong stocks.

Chart: Non-bank deposit scale increased by 2.26 trillion yuan in 3Q25

Source: Wind, CICC Research Department

Chart: A-share ETF outflow of approximately 55 billion yuan in 3Q25

Source: Wind, National Financial Regulatory Administration, CICC Research Department

Chart: Net inflow of available Hong Kong stock ETFs of approximately 200 billion yuan in 3Q25, accounting for about 10% of the funds flowing into Chinese equity assets

![](https://mmbiz-qpic.wscn.net/sz_mmbiz_png/fzHRVN3sYsibNm9CMZ2iaKUguWAvFtYTbaibYavjySiaRmB7iaiaw4k6cibKcBuPkSehlOX2nibQHdcgrzdE4VqLrdpq2g/640? Data source: Wind, CICC Research Department

Authors of this article: Liu Gang, Zhang Wei, source: CICC Insight, original title: "CICC: Who are the main players and incremental funds?"

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