The two sources of funds exhibit significant hierarchical differentiation in industry coverage and limited resonance in investment tracks, reflecting fundamental differences in fund attributes, return objectives, and decision-making time horizons.
Between 2025 and early 2026, the Hong Kong stock market welcomed two distinct yet directionally aligned sources of incremental capital — mainland southbound funds set a new historical record with an annual net purchase of HKD 1.41 trillion, emerging as the core determinant of Hong Kong stock pricing; South Korean retail investors, on the other hand, concentrated their bets in an “East Asian Ant Movement” style, leveraging high-risk trades and fervently pursuing cutting-edge technology, triggering structural waves at the fringes of the Hong Kong market. While one group emphasizes long-term allocation anchored by value, the other engages in high-frequency trading driven by industrial narratives, jointly mapping out a new spectrum for the Hong Kong stock market characterized by diversified capital sources and layered pricing logic.
Scale and Structure: Absolute Dominance and Marginal Catalysts
There is a significant hierarchical difference between the scale of southbound funds and South Korean retail investors in the Hong Kong stock market, but their functional roles and market influence are each irreplaceable.
Southbound funds have become the core incremental source and a reshaper of the valuation system for the Hong Kong stock market. By the end of 2025, cumulative net inflows from Southbound funds reached 5.11 trillion Hong Kong dollars, with net purchases in 2025 alone amounting to 1.41 trillion Hong Kong dollars, nearly equal to the total of the previous three years (2022-2024). The market value of their holdings exceeded 6.3 trillion Hong Kong dollars, accounting for 12.7% of the total market capitalization of Hong Kong stocks.
This scale indicates that Southbound funds have moved beyond the ‘marginal supplement’ phase, evolving into an ‘endogenous pricing variable’ for the Hong Kong stock market.
The scale of funds from South Korean retail investors in the Hong Kong stock market is relatively limited. However, their trading behavior exhibits high concentration, significant leverage characteristics, and strong community synchronization effects in decision-making, enabling them to exert short-term pricing impacts and shape liquidity premiums on specific targets—particularly new economy IPOs, semiconductor supply chains, and AI-themed leaders. In early 2026, South Korean retail investors recorded net purchases exceeding 20 million US dollars in a single month, contributing to an IPO that achieved 1,837 times oversubscription. South Korean capital was a key catalyst for the initial valuation premium post-listing. $MINIMAX-WP (00100.HK)$ The IPO recorded 1,837 times oversubscription, with South Korean funds playing a pivotal role in driving the valuation premium during the early stages of listing.
Sector Preferences: Layered Allocation Between Value Anchoring and Growth Focus
The two sources of funds exhibit significant hierarchical differentiation in industry coverage and limited resonance in investment tracks, reflecting fundamental differences in fund attributes, return objectives, and decision-making time horizons.
The financial industry and high-dividend utility sectors are ‘independent allocation domains’ for Southbound funds. $CCB (00939.HK)$ 、 $ICBC (01398.HK)$ 、 $PING AN (02318.HK)$ 、 $CHINA MOBILE (00941.HK)$ 、 $CHINA SHENHUA (01088.HK)$ These stocks have received systematic increases in holdings worth tens of billions of Hong Kong dollars from Southbound funds, driven primarily by high dividend yields, low valuation levels, Renminbi asset attributes, and perpetual operation assumptions. South Korean retail investors hold almost no positions in this sector.
Southbound funds heavily hold $BABA-W (09988.HK)$ (an increase of 191.3 billion Hong Kong dollars in market value), $MEITUAN-W (03690.HK)$ 、 $TENCENT (00700.HK)$ The allocation logic has evolved from ‘valuation recovery’ in 2024 to ‘value reassessment’ in 2025, exhibiting characteristics of cross-cycle, low turnover, and left-side accumulation for strategic portfolios.
Korean retail investors heavily invested in $XIAOMI-W (01810.HK)$ (with net purchases of $87.75 million) in 2025, rapidly switching to $MINIMAX-WP (00100.HK)$ (net purchases of $20.67 million) at the start of 2026, demonstrating high elasticity, high turnover, and strong narrative-driven trading behavior. Both groups share a systematic optimism towards China’s technology leaders but differ significantly in target selection and holding durations.
In 2025, southbound capital recorded net purchases of $SMIC (00981.HK)$ 508 million shares, increasing the stockholding value by HKD 36 billion and acting as the dominant force in sector pricing; during the same period, Korean retail investors made net purchases of $33.11 million, forming a dual-layer pricing structure where strategic portfolios anchor while trading portfolios support, jointly driving up the sector’s valuation center.
At the beginning of 2026, Korean funds quickly shifted towards $MONTAGE TECH (06809.HK)$ 、 $INNOSCIENCE (02577.HK)$ and Chinese semiconductor ETFs, reflecting sector rotation in niche segments and tool-based allocation; southbound funds continued steady increases in SMIC holdings, highlighting rigid allocation and holding inertia. The two groups transitioned from strategy resonance to divergence within the semiconductor sector, reflecting decision-making differences between trading and strategic portfolios at varying stages of the industry cycle.
$HORIZONROBOT-W (09660.HK)$ entered the top 20 southbound list for 2025 with an incremental market cap of HKD 21.4 billion, indicating that southbound funds have begun left-side positioning in intelligent driving computing power layers but remain in the early stages of cognitive adoption. $MINIMAX-WP (00100.HK)$ The IPO frenzy was primarily driven by South Korean retail investors, with net purchases exceeding $20 million in a single month and an oversubscription rate of 1837 times. Their decision-making process exhibited strong community consensus and weak reliance on institutional guidance, reflecting typical characteristics. South Korean capital demonstrated a clear willingness to price risk premiums in this sector, providing dual implications for southbound capital: validation of industrial narratives and reference for valuation anchors.
$BEONE MEDICINES (06160.HK)$ 、 $WUXI XDC (02268.HK)$ 、 $ASCLETIS-B (01672.HK)$ South Korean retail investors have shown annual-level sector rotation in their holdings, with entry and exit points highly correlated with global liquidity expectations and the U.S. biopharmaceutical index, representing trading behavior driven by global beta factors.
$BYD COMPANY (01211.HK)$ 、 $LI AUTO-W (02015.HK)$ Vehicle manufacturers have been consistently allocated as long-term holdings by southbound capital, with decision anchors lying in penetration rate curves, production capacity cycles, and global validation, reflecting characteristics of industrial alpha-tracking allocation strategies. The duration mismatch between trading-oriented and allocation-oriented capital is most evident in high-growth sectors with high valuation volatility and substantial R&D investment—South Korean capital speculates on marginal changes, while southbound capital bets on the ultimate outcome of the industry.
The trading behaviors of southbound capital and South Korean retail investors highlight fundamental distinctions between institutional and retail approaches, value anchoring versus narrative-driven strategies, and long-cycle versus high-frequency rotation.
Southbound capital’s decision anchors include dividend yield, ROE stability, free cash flow generation capacity, and valuation percentiles. Trading characteristics involve continuous accumulation, contrarian buying, and stable holdings. For instance, in 2025, despite fluctuations in share prices, southbound capital continuously net purchased 7.389 billion shares of China Construction Bank, increasing the stock’s value by HKD 55.8 billion. The behavior of “buying more as prices fall” is not an emotional outburst but rather reflects a configuration strategy where dividend yields rise as share prices drop, strengthening the margin of safety.
Through sustained, predictable, and large-scale capital inflows, southbound capital is gradually converging the valuation systems of Hong Kong-listed financial institutions and telecom operators toward those of A-shares. In the case of China Construction Bank and China Mobile, southbound capital ownership exceeds 20%.
South Korean retail investors’ decision anchors are tied to the intensity of industrial narratives, social media buzz, and community consensus. Their pricing logic does not focus on “how much a company is worth” but rather on “what price the next entrant is willing to pay.” Trading characteristics default to high leverage. The number of active stock accounts in South Korea reached 62 million, 1.2 times the total population; peak overseas stock margin balances exceeded KRW 18 trillion (approximately USD 12.6 billion).
Notably, data from the Korea Exchange shows that the average holding period for domestic individual investors is less than three months, with turnover rates for some popular U.S. and Hong Kong stocks even surpassing those of certain cryptocurrencies. This contrasts sharply with southbound capital, which often holds positions for years. High-frequency trading brings not only high commissions (in 2025, overseas stock trading commissions from 12 major brokers reached KRW 1.95 trillion) but also extreme sensitivity to sentiment.
Zhitong Finance APP believes that the label of ‘gambling mentality’ attributed to South Korean retail investors is, in fact, a rational adaptive behavior shaped by institutional environments and industrial structures. Although South Korea boasts global semiconductor manufacturing giants, it lacks representative enterprises in soft technology fields such as internet platforms, cloud computing, and large AI models, leading to compensatory trading impulses—concentrating investments in Alibaba represents a bet on ‘the Amazon that South Korea lacks,’ while aggressively acquiring MiniMax reflects the search for ‘the OpenAI that South Korea lacks.’
For the Hong Kong stock market, the influx of South Korean investors serves both as an incremental source of liquidity and as an important step toward diversifying the investor base. Unlike southbound funds, which allocate assets to state-owned major banks for dividend income over annual timeframes, or international long-term funds, which strictly demand ESG data, this type of capital may exacerbate volatility at certain times but can also directly reshape the pricing ecosystem during initial public offerings (IPOs) at other times—as seen in the case of MiniMax-WP’s IPO.
In summary, southbound funds are reshaping the valuation foundation of the Hong Kong stock market with their trillion-level scale, while South Korean retail investors are injecting liquidity premiums into niche areas through extreme trading behaviors. These two types of capital, driven by distinct logics, together foster a ‘dual-pricing, parallel narratives’ new normal in the Hong Kong stock market—one that requires both the resilience of allocation-focused strategies and the precision of trading-driven tactics.
Editor/KOKO
