On February 5th, the Hong Kong stock market displayed a steady performance, yet it was a stark contrast for related Exchange-Traded Funds (ETFs) which saw vibrant trading activitySeveral funds soared in value, with some experiencing extraordinary trading volumes that exceeded six times their usual levelsThis vigorous activity among ETFs can be traced back to the positive momentum that the Hong Kong stocks accumulated during the Spring Festival period, highlighted by significant increases in key indices such as the Hang Seng Index and the Hang Seng Tech Index, which posted gains of 5.53% and 10.23% respectively.

The data indicates that while Southern funds are showing a preference for high-dividend sectors in 2024, a number of fund managers have expressed a strong bullish sentiment towards the technology sectorWith stocks like Kingsoft Cloud and SMIC hitting historical highs, analysts have pointed out that core areas such as artificial intelligence, new energy, new materials, biotechnology, and advanced equipment are currently undergoing rapid technological developments and crucial stages of industrialization

Advertisements

These sectors are poised to become new engines of economic growth, making them attractive investment opportunities.

Multiple ETFs Double Turnover Rates

In conjunction with the Hong Kong stock market's consistency, themed ETFs showcased remarkable performance on February 5thWind data showed that the Hong Kong Technology 30 ETF and the New Economy Hong Kong Stock Connect LOF have hit their upper limits, with other notable ETFs like Efund's Hang Seng New Economy ETF, Bosera Hong Kong Internet ETF, Efund's Hong Kong Stock Connect Internet ETF, and Huabao Hong Kong Internet ETF each rising more than 6%. Additionally, several other products, including the Cathay Pacific Hong Kong Technology ETF and Huatai-PineBridge's Hong Kong Stock Connect Technology 50 ETF, saw increases above 5%. Following this surge, numerous products experienced premium rates exceeding 10%.

Interestingly, several technology-themed ETFs are exhibiting heightened trading activity in the secondary market

Advertisements

The Hang Seng New Economy ETF recorded an astonishing turnover rate of 648% with trading volume nearing 1.3 billion yuan (approximately 200 million USD) for the day, a stark contrast to the previous month where daily trading volumes often dipped to a few hundred thousand yuan, with days of trade barely breaking the million mark being commonplaceSimilarly, the Hong Kong Technology 30 ETF, Hong Kong Internet ETF, and Hong Kong Tech ETF each registered turnover rates exceeding 100%, with transaction amounts also reaching new heights recently.

Public Offerings Increase Holdings in Hong Kong Stocks

As the Hong Kong stock market continues to stabilize, public funds have accumulated holdings reaching historic highs after several quarters of "bottom-fishing" the marketReports from CICC indicate that southern-bound funds poured into the Hong Kong market to the tune of 304.29 billion HKD in the fourth quarter of 2024, accounting for nearly 40% of the total record inflow of 807.87 billion HKD for the entire year

Advertisements

By the end of 2024, there were a total of 3,781 public funds available for investment in Hong Kong stocks (excluding QDII), which held about 492.8 billion RMB in Hong Kong stocks, reflecting an 8.1% increase from 455.8 billion RMB in the third quarterThis trend underscores a proactive stance taken by these funds despite a general decline in the Hong Kong stock market during the last quarter.

By the end of the fourth quarter, public funds' exposure to Hong Kong stocks rose to 30.5% of their equity investment value, marking the highest level since 2019 and significantly exceeding the 26.5% recorded in the third quarterFurther insight into the actively managed equity funds shows their total holdings in Hong Kong stocks totaled 323.6 billion RMB in the fourth quarter, up by 1.9% from 317.4 billion RMB in the third quarter, with the holdings percentage climbing from 23.3% to 25.9%, also achieving the highest levels since 2019.

Moreover, the allocation ratio for Hong Kong stocks within actively managed equity-type funds reached the highest level since 2015, as reported by Guotai Junan

• Investing in A-Shares the Bogle Way
• Warning: The U.S. May Face Inflation
• UK Treasury Gold Sold at Discount
• Longi Green Energy: Profit Plunges to $8 Billion Loss
• Dow Jones Rises Consecutively

In the fourth quarter of 2024, the allocation to Hong Kong stocks by these funds stood at 14.3%, an increase of 1.9% quarter-on-quarterThe notable rise in these funds’ allocations to Hong Kong stocks indicates a significant shift in investment strategy and confidence in the market's potential.

It is noteworthy that in 2024, southern-bound funds have particularly favored high dividend sectors, showing a strong preference for banks, which have seen a substantial inflowBeyond banks, typical high dividend sectors in Hong Kong including telecommunications, oil and petrochemicals, and utilities have also received continuous inflows of capital from these southern-bound funds.

The top ten Hong Kong stock holdings by mainland and Hong Kong mutual funds, based on their market value as of the end of the fourth quarter of 2024, included well-established companies such as Tencent Holdings, CATL, Meituan-W, Kweichow Moutai, Alibaba-W, Xiaomi Group-W, Midea Group, China National Offshore Oil, Luxshare Precision, and China Mobile

Notably, companies like Tencent Holdings, Alibaba-W, Xiaomi Group-W, Midea Group, and China National Offshore Oil have been increased in holding by mainland and Hong Kong mutual funds to varying degrees.

The Value Proposition Remains Distinct

Many fund managers continue to maintain an optimistic outlook for the technology sector in Hong Kong stocksThe manager of the Huatai-PineBridge CSI Hong Kong Stock Connect Technology ETF pointed out that from a global asset allocation perspective, Hong Kong stocks remain significantly undervalued compared to overseas markets such as the United States and India, underscoring a pronounced competitive edgeAdditionally, the price-to-earnings ratio of the CSI Hong Kong Stock Connect Technology Index is at a historical low, making it an appealing investment opportunity.

The manager of the Hang Seng New Economy ETF, Song Zhaoxian, explained that the new economy industries based on new technologies, new business forms, and new models encompass a range of innovative industries with high value addition and promising market prospects

These sectors are firmly aligned with the country's efforts to advance new productive forces strategicallyPresently, fields like artificial intelligence, new energy, new materials, biotechnology, and advanced equipment are in pivotal phases of rapid technological development and industrial application, representing potential catalysts for future economic growthCompanies operating within the Hong Kong market that focus on new economic sectors interconnect closely with advanced technology applications, indicating substantial growth potential.

Li Qingyang from Bosera Fund addressed in their quarterly report that despite a weakened overall environment for the Hong Kong stock market, the market still presents sound value for allocationThe anticipated decline in the U.Sdollar interest rates is expected to facilitate the release of liquidity within the Hong Kong marketMoreover, continuous inflows of southern-bound capital not only boost market liquidity but also significantly enhance market vibrancy and investor confidence