This year, the ETF market has displayed a pattern of uneven performance. Against the backdrop of net outflows from broad-based ETFs, Hong Kong-themed ETFs have bucked the trend, emerging as a key area for capital allocation. Specific sub-sectors such as Hang Seng Tech ETFs, Hong Kong Stock Connect Internet ETFs, and Hong Kong Stock Connect Innovative Pharma ETFs have all experienced net inflows, highlighting market preference for Hong Kong assets and reflecting the current structural allocation logic.
Specifically, the divergence within the ETF market has been pronounced. Broad-based ETFs have seen net outflows, with major indices like the CSI 300 ETF, CSI 500 ETF, CSI A500 ETF, and SSE 50 ETF all recording varying degrees of capital withdrawal. Conversely, enthusiasm for allocating to Hong Kong-themed ETFs has increased, with sectors like technology, internet, and innovative pharmaceuticals performing notably well and becoming significant targets for investment.
Data from Wind Information shows that as of February 24th, the Hang Seng Tech ETF recorded a net inflow of 29.6 billion yuan this year, the Hong Kong Stock Connect Internet ETF saw 11.3 billion yuan, the Hong Kong Stock Connect Innovative Pharma ETF attracted 3.015 billion yuan, and the Hong Kong Stock Connect Tech ETF garnered 2.625 billion yuan.
These capital flows indicate investors' heightened focus on and tendency to position for opportunities in the Hong Kong market. A fund manager noted that the attractiveness of Hong Kong market valuations is gradually becoming apparent. From a medium-term perspective, the market may experience an upward trajectory despite potential volatility, with domestic growth-stabilizing policies and the Federal Reserve's monetary policy path warranting close monitoring. Both the numerator (corporate earnings) and denominator (liquidity factors) affecting Hong Kong market pricing are expected to see marginal improvements. Low valuation levels provide a buffer against external volatility and could make the market more sensitive to potential growth recovery and policy signals, potentially leading to greater elasticity.
From another perspective, the capital flows also reveal three main strategies investors are employing for Hong Kong market allocation: buying at low levels, focusing on specific sectors, and being driven by liquidity expectations. Capital is entering the market counter-cyclically while Hong Kong valuations are at historically low intervals, concentrating allocations in scarce core assets like technology, innovative pharmaceuticals, and internet platforms to seek excess returns. Simultaneously, betting on expectations of loose overseas liquidity and sustained southbound capital inflows, investors are actively using ETF tools to efficiently capture market opportunities, reflecting a strategy of seeking structural opportunities within risk.
Recently, the Hong Kong market has shown a volatile pattern, but interviewees remain optimistic about its structural investment opportunities. Looking ahead to 2026, with expectations of a persistently accommodative liquidity environment, the core view of a "structural market" in Hong Kong is maintained. For the market to break through upward bottlenecks, the key lies in substantial recovery in corporate earnings, rather than relying solely on valuation expansion or linear narrowing of risk premiums. The current wave of AI technology innovation has not yet peaked; therefore, the technology growth theme remains a firm conviction for allocation. Additionally, the non-ferrous metals sector, characterized by tight supply-demand balance and international pricing, is worth attention. These assets may benefit from global capital expenditure in emerging industries and incremental demand from overseas fiscal stimulus, while rigid supply constraints could further strengthen their price resilience.
For retail investors, while utilizing ETFs to access the Hong Kong market, it is crucial to have full awareness and prepare reasonable responses to participate more steadily. For example, investors need to be mindful of risks such as exchange rate fluctuations, premium risk, volatility risk, and liquidity risk. Specifically, currency movements can impact investment returns; cross-border ETFs might face price pullback risks due to high premiums; furthermore, Hong Kong stocks operate on a T+0 settlement system, leading to high activity and volatility, with certain sectors potentially being significantly affected by earnings disruptions. When selecting ETFs, investors should prioritize those with large scale, good liquidity, and low fees, while also controlling position sizes and diversifying allocations to mitigate risk.
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