To The Moon

Recently, the Chinese market has experienced a remarkable rally that has attracted widespread attention from investors.During this uptrend, the attributes and flow of capital play an important role in the market's sustained rally.Based on EPFR data and information from channels such as the Shanghai-Hong Kong Stock Connect, combined with client feedback, the current market's main funding forces can be analyzed in depth. $HSI(HSI)$ $HSTECH(HSTECH)$ $SSE Comp(000001.SH)$ $CSI300(000300.SH)$

First, long Only Institutional inflows has not yet returned significantly.

EPFR data shows continued active foreign outflows for the week ending September 29, a trend consistent with feedback from our client interactions.Long-term investors are still seeking to be defensive in their underweight strategies to avoid large losses in market volatility.This means that although the market has risen, long term funds have not increased their positions in a big way, showing a cautious attitude.As a result, the current rally may lack the support of long term institutions and its sustainability remains questionable.

Second, trading and passive funds may be the main drivers of this rally.

Trading funds, such as hedge funds, were the first to flow into the market at the beginning of the rally due to their greater flexibility and ability to respond quickly to market movements.Similar to the situation in April-May this year when Hong Kong stocks were on the rise, the increase in short selling during the market rally also reflected the phenomenon of long-short game.Meanwhile, EPFR data showed a surge in passive capital inflows, which reflected more active behavior of non-institutional investors, explaining the apparent rise in the index's weighted stocks.

However, the inflow of southbound funds slowed down and even saw outflows at one point.

This part of the capital is mainly concentrated in the rising trend of leading subjects, the overall net selling shows signs of profit-taking or position transfer.This suggests that some investors chose to liquidate their profits during the market rally rather than continue to bet on future gains.This phenomenon is also consistent with historical experience, where past rallies have tended to attract large amounts of trading capital in the short term, but lacked the sustained support of long term capital.

Finally, reviewing the historical experience, the flexibility of trading and passive money has allowed it to excel in the early stages of rallies, but lack of persistence is an inherent characteristic.

Taking the market rally at the end of 2022 as an example, although passive foreign capital began to flow in late September, the return of active foreign capital did not become apparent in the following two months, and the market eventually turned to shock.Therefore, if the fundamentals can be repaired and more active long term funds are attracted back, the upside of the market will be significantly expanded.

To summarize, the current rise in China's market is mainly driven by trading and passive funds, while the cautious attitude of long term foreign funds may limit the sustainability of this round of rally.Going forward, focusing on the changes in market fundamentals and the return of long term capital will be the key to judging the direction of the market.