This time, domestic investors really want to grab the

Mainland investors' enthusiasm for the Hong Kong stock market is unprecedented.

Yesterday, the turnover through Hong Kong Stock Connect accounted for nearly half of the total turnover of Hong Kong stocks, and the net purchase reached HK$ 16.5 billion, the highest level since the beginning of December.

Dong Yi and Sheng Wang, analysts of Shenwan Hongyuan, said in the report "Hong Kong Stock Connect Funds: From Quantitative Change to Qualitative Change-One of the New Frameworks of Hong Kong Stock Connect Research: Dismantling Hong Kong Stock Connect Funds & Updating &ERP Model" that in recent years, the proportion of Hong Kong Stock Connect funds in the market turnover has been rising. Since the fourth quarter of 2024, the proportion of Hong Kong Stock Connect funds in the market turnover has been 20%-25% in most trading days, and the impact of Hong Kong Stock Connect funds on the market cannot be ignored.

Moreover, historically, the valuation and trend of Hong Kong stocks have been greatly influenced by the spread between China and the United States, but since the fourth quarter of 2023, the influence of this factor has begun to decline, and even continued to deviate.

In this regard, Shen Wanhongyuan optimized the Hang Seng Index ERP model to reflect the changing trend of investor structure and avoid the influence of short-term extreme value on the model:

The market risk-free interest rate since the opening of the Hong Kong Stock Connect on November 17, 2014 was optimized to the weighted yield of 10-year US bonds and China bonds, in which the weight of the yield of 10-year medium-term bonds was the moving average of the proportion of Hong Kong Stock Connect funds in the total turnover of the market in the past 10 trading days.

According to the report, as of February 7, 2025, the implied ERP of Hang Seng Index optimized by capital cost is 6.73%, which is still far from the extremely optimistic level.

At present, the allocation ratio of overseas investors to China is at a low level, and the current capital inflow in the Hong Kong stock market mainly comes from passive funds such as ETF. In addition, the proportion of short selling in the market has begun to decrease, and the turnover rate of the market has also rebounded, which means that the trading activities in the market are increasing.

Therefore, Shen Wanhongyuan believes that there is still room for further improvement in the liquidity of the Hong Kong stock market. If there is a FOMO effect, then the stock market's rally may be even more rapid.

Risk warning and exemption clause

The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.