Chinese funds cut Hong Kong stock holdings to 2-year low despite strong southbound flow

Chinese mutual funds have reduced their Hong Kong stock holdings via the southbound Stock Connect to a more than two-year low in the second quarter, despite a lot of money moving southward over the same period.

The share of Hong Kong stocks in their portfolios fell to 23.3 per cent in the second quarter of this year, which was lower than the 23.9 per cent posted two years earlier, according to a report published by investment bank China International Capital Corporation on Thursday.

It also marked a sharp fall from 34.7 per cent in the first quarter.

The investment bank revealed its findings by tracking 5,163 mainland mutual funds, which collectively managed 4.4 trillion yuan (US$649.98 billion) in assets. It did not include investments by Qualified Domestic Institutional Investor (QDII) funds.

Mainland mutual funds held Hong Kong-listed shares worth 649.1 billion yuan by the end of June, down about 23 per cent from three months earlier.

Southbound flow, where mainland investors buy and sell Hong Kong-listed shares, remains one of the key liquidity drivers in the Hong Kong stock market, said Mike Leung Kit-man, a director at Wocom Securities.

“Such inflows from mainland buyers raise trading volumes, often accounting for nearly 25 per cent of the daily equities turnover in the Hong Kong market.”