Southbound funds hit new high in September: HK stocks' low valuation attractiveness highlighted, AI and high dividend dual main strategies

Southbound Funds Hit New High in September: HK Market Enters Golden Period for Allocation

September 22, 2026, as global market uncertainty increases, Hong Kong's stock market continues to attract mainland capital inflows with its low valuation advantages and international characteristics. The latest data shows that since September, southbound funds have net inflows exceeding 80 billion Hong Kong dollars, a new high for the year, demonstrating investors' confidence in the HK market. Behind this phenomenon is the re-recognition of the unique value of the HK market in global asset allocation, especially the dual-main strategy of low valuation high dividend sectors and AI tech stocks is forming.

Southbound Funds Continue to Increase, Reaching New High for the Year

According to the latest data from the Hong Kong Stock Exchange, as of September 21, southbound funds have accumulated net inflows of 82.36 billion Hong Kong dollars in September, an increase of about 15% compared to the same period last month, setting a new high for monthly net inflows this year. Among them, HK Connect southbound transactions have maintained net inflows for 12 consecutive trading days, showing that mainland investors continue to be optimistic about the HK market.

Analysts point out that behind the continuous increase in southbound funds are the unique advantages of the HK market in global asset allocation. On the one hand, the valuation of the HK market is at a historical low, with an average P/E ratio lower than major global markets; on the other hand, the HK market has gathered many high-quality Chinese enterprises, especially leading companies in the new economy sector, providing investors with abundant choices.

Low Valuation High Dividend Sectors Become Capital "Safe Haven"

In southbound fund allocation, low valuation high dividend sectors have become the most favored direction. Data shows that since September, traditional industries such as finance, energy, and utilities have accounted for over 40% of southbound fund net inflows. These sectors not only have relatively low valuations but also have high dividend yields, showing significant allocation value in the current interest rate environment.

Take the banking industry as an example, the average price-to-book ratio (P/B) of HK bank stocks is only about 0.6 times, at a historical low, while dividend yields are generally above 5%, which has strong attraction for investors seeking stable returns. Similarly, energy and utility sectors have also become key allocation targets for southbound funds due to their stable cash flow and high dividend characteristics.

Industry experts say that against the backdrop of slowing global economic growth and declining interest rates, the defensive attributes and return characteristics of low valuation high dividend sectors will further highlight, attracting more attention from stable-type funds.

AI and Tech Stocks Lead the Growth Main Line

In addition to low valuation high dividend sectors, AI and tech stocks have also become important allocation directions for southbound funds. Since September, the tech sector has accounted for about 35% of southbound fund net inflows, with artificial intelligence, semiconductors, cloud computing and other sub-sectors showing particularly outstanding performance.

With the rapid development of global AI technology, AI-related enterprises in the HK market are facing development opportunities. Tech giants like Tencent Holdings (00700.HK) and Alibaba (09988.HK) have recently increased their investments in the AI field, driving stock prices up. At the same time, innovative enterprises focusing on AI chips, algorithms and applications have also been favored by southbound funds.

Data shows that since September, the Hang Seng Tech Index has risen by about 8%, outperforming the market. The strong performance of the tech sector reflects the market's expectations for technological innovation and industrial upgrading, and also reflects the positive allocation of southbound funds to growth sectors.

HK Market Valuation Advantages Further Highlighted

Compared with major global markets, the HK market has obvious valuation advantages. As of September 21, the average P/E ratio of the Hang Seng Index is about 9.5 times, lower than 18 times for US stocks, 14 times for European stocks, and 12 times for A-shares, at a relatively historical low.

This valuation advantage mainly stems from several aspects: first, the HK market is greatly affected by international capital flows and is vulnerable to pressure when global liquidity tightens; second, some HK enterprises are affected by the mainland economic environment, resulting in large fluctuations in performance; third, the HK market has a large number of "old economy" enterprises with relatively slow growth.

However, as global market volatility increases, the low valuation advantage of the HK market is being re-recognized. Many institutional investors believe that the current HK market has a high safety margin and is a good target for long-term value investment.

International Capital Returns, HK Allocation Value Re-recognized

In addition to southbound funds, international capital has also accelerated its return to the HK market recently. The Fed's September rate cut expectation has risen to 85%, and the global liquidity environment is becoming loose, prompting international capital to re-evaluate the allocation value of the HK market.

Data shows that since September, northbound funds have net inflows into HK of about 35 billion Hong Kong dollars, a new high for the second half of the year. International asset management giants such as BlackRock and Vanguard have recently upgraded their HK ratings, believing that the proportion of the HK market in global asset allocation should be appropriately increased.

The return of international capital not only brings incremental funds to the HK market but also enhances the market's international recognition and activity. The resonance of southbound and international capital will further strengthen the investment value of the HK market.

HK Market Investment Strategy Recommendations

Facing the current market environment, investors can adopt the following strategies to allocate in the HK market:

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• Balanced Allocation, Balancing Value and Growth: Maintain appropriate balance between low valuation high dividend sectors and AI tech stocks to obtain stable returns while sharing growth dividends.
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• Focus on Policy Beneficiary Sectors: As mainland policy support increases, HK enterprises in digital economy, green energy and other fields are expected to benefit, which deserves attention.
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• Grasp Structural Opportunities: In market fluctuations, focus on individual stocks with better-than-expected performance and valuation recovery potential, grasping structural investment opportunities.
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• Control Risks, Moderate Diversification: The HK market has large fluctuations, investors should appropriately control positions and reduce risks through diversified investment.
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Conclusion: HK Market Enters Golden Period for Allocation

Overall, southbound funds have continued to increase their positions in the HK market in September, reaching a new high for the year, reflecting investors' recognition of the HK market's value. Against the backdrop of increasing global economic uncertainty and declining interest rates, the low valuation advantages and international characteristics of the HK market will further highlight, providing good allocation opportunities for investors.

In the future, with changes in the global economic landscape and the opening of the mainland capital market, the position of the HK market in international asset allocation will be further enhanced. Investors should seize the current window period to reasonably allocate HK assets and share the development dividends of the HK market.

Of course, investment has risks, and entering the market requires caution. When participating in HK investment, investors should fully understand market risks and make reasonable investment decisions according to their own risk tolerance.