The attractiveness of Hong Kong stocks continues to increase, Goldman Sachs raises the 2025 southbound capital flow forecast to USD 110 billion

According to the Zhitong Finance APP, Goldman Sachs has significantly raised its forecast for the southbound capital flow under the mutual market access mechanism between the mainland and Hong Kong stock markets for 2025, increasing the estimated scale from USD 75 billion to USD 110 billion, citing the growing attractiveness of Hong Kong stocks.

Goldman Sachs stated in a report that this upward revision reflects the greater appeal of H-shares in terms of earnings growth, valuation, and dividend yield, as well as the expansion of investable targets due to new listings and the return of Chinese concept stocks.

According to Goldman Sachs data, southbound capital had the strongest start to the year, becoming a key funding driver for H-shares. Year-to-date, net purchases by southbound investors have reached USD 78 billion, equivalent to 75% of the total inflow for the entire year of 2024. Among these, purchases of artificial intelligence technology stocks and high-dividend stocks contributed USD 29 billion and USD 22 billion, respectively, accounting for about 65% of the total inflow of southbound capital year-to-date.

Goldman Sachs noted that southbound investors currently hold Hong Kong stocks with a market value of USD 577 billion, representing 13% of the total market value of southbound eligible stocks, up from 10% a year ago. Their trading volume share has also increased from 17% in 2024 to an average of 21% year-to-date.

It is worth noting that several global financial institutions have also raised their forecasts for Chinese stocks. According to Reuters, Goldman Sachs raised its target price for emerging market stocks in March this year, predicting that the AI-driven rally in the Chinese stock market will also boost other markets.

Xi Junyang, a professor at Shanghai University of Finance and Economics, stated on Monday that the growth in southbound trading is mainly due to two reasons. First, the current valuation of Hong Kong stocks is relatively low, making them more attractive to investors; second, Hong Kong stocks have attracted a large amount of international capital, showing a clear upward trend overall.

China Galaxy Securities stated in a research report on Monday that the government's commitment to implementing more proactive and effective macro policies amid "uncertainties from drastic changes in the external environment" will also support steady earnings growth for Hong Kong stocks.

According to data from the Chinese financial information service provider Wind Information, the technology, consumer, and financial sectors have become key areas of focus for southbound capital.

Hong Kong's Financial Secretary Paul Chan emphasized in a blog post on April 13 that Hong Kong is ready to actively attract high-quality global enterprises to list in the city. He wrote, "Hong Kong has established a regulatory framework to facilitate dual or secondary listings for overseas listed companies. In light of recent global developments, I have instructed the Securities and Futures Commission and Hong Kong Exchanges and Clearing Limited (HKEX) to be well-prepared for the potential return of Chinese concept stocks. HKEX will also enhance its promotion in the ASEAN and Middle Eastern markets to attract more high-quality enterprises from these regions to list in Hong Kong, while introducing more international capital to further consolidate Hong Kong's position as a global financial center."