On July 25, 2026, Hong Kong stocks closed higher amid volatility, with the Hang Seng Index up 0.5% at 21,800 points. The tech sector outperformed, with the Hang Seng Tech Index surging 2.1%, while heavyweight stocks such as Meituan, Tencent, and Kuaishou all rose over 2%. Behind the market sentiment recovery were continued top-ups by southbound funds and the positive catalyst of Stock Connect expansion.
Southbound funds record consecutive net buys, tech stocks in focus
As of close, southbound funds recorded a net buy of HKD 5.43 billion on the day, marking the 10th consecutive day of net inflow, with cumulative net buys exceeding HKD 50 billion. Funds mainly flowed to the tech sector, with Meituan, Tencent, and Xiaomi Group ranking top three in net buys, totaling over HKD 2 billion.
Industry insiders believe the sustained inflow of southbound funds reflects mainland investors' confidence in Hong Kong tech stocks. With further expansion of Stock Connect eligible stocks, more new economy companies will be included, providing greater room for capital allocation.
Stock Connect expansion imminent
HKEX announced on the day that from August 1, 2026, it will further expand the scope of Stock Connect eligible stocks to include more "new economy" companies, covering biotech, new energy, cloud computing, and other sectors. This expansion is expected to add about 30 stocks, including several recently listed emerging companies in Hong Kong.
The announcement stated that this adjustment aims to deepen the connectivity mechanism between Mainland and Hong Kong markets, providing investors with more diversified asset allocation options. It also aligns with HKEX's strategic direction of supporting the innovation economy and enhancing market vitality.
CICC research noted that this Stock Connect expansion is one of the most significant adjustments in recent years, especially opening up to new economy companies with smaller market caps but high growth potential, which is expected to attract more southbound funds and overseas active funds, driving valuation recovery in Hong Kong's tech sector.
Market reaction: Valuation recovery expectations for tech sector strengthen
Stimulated by the expansion news, Hang Seng Tech Index constituents generally rose today. Meituan closed up 2.8%, Tencent up 2.5%, and Kuaishou up 3.1%. Additionally, some potential inclusion targets also strengthened in advance, such as biotech company BeiGene up 4.5% and new energy vehicle XPeng up 3.7%.
Traders indicated that currently the overall valuation of Hong Kong's tech sector is at historical lows, with a P/E ratio of about 20 times, lower than A-share peers. With continued mainland fund inflows through Stock Connect, the valuation recovery rally is expected to extend into the second half of the year.
It is worth noting that some profit-taking emerged in the market today, but overall buying remained strong. Analysts believe the consecutive net buys by southbound funds have created a certain "anchoring effect," and investors remain optimistic about the medium-term outlook for Hong Kong stocks.
Institutional interpretation: Seize structural opportunities
The strategy team of Guotai Junan International stated that the Stock Connect expansion is the biggest policy catalyst in the near term, expected to bring incremental funds of HKD 5-8 billion per week to Hong Kong stocks. However, funds will be more concentrated in new economy sectors such as tech, consumer, and healthcare, while traditional sectors like financials and property may lag.
The institution advises investors to focus on three directions: first, stocks directly benefiting from the Stock Connect expansion, such as high-quality new economy companies not yet included; second, internet leaders with bottom valuations and expected earnings recovery; third, consumer electronics and semiconductor supply chains benefiting from the domestic economic recovery.
Meanwhile, some analysts also warned of risks. A Hong Kong-based private equity fund manager pointed out that southbound funds are mostly institutional allocation, and retail investors should not blindly chase highs. Investors need to be cautious about pullback risks after sharp short-term gains in some stocks, especially those with unclear profit prospects.
Outlook: Dual drivers of liquidity and fundamentals
Looking ahead, the market generally believes the liquidity environment for Hong Kong stocks will continue to improve. On one hand, the Fed's rate hiking cycle is nearing its end, and a weakening USD favors capital flows back to emerging markets. On the other hand, incremental funds from the Stock Connect expansion will continue to be injected, boosting market sentiment.
On the fundamental side, domestic economic data is gradually stabilizing. June retail sales (social consumer goods total) grew 5.8% year-over-year, and the manufacturing PMI has been in expansion territory for two consecutive months, providing support for Hong Kong-listed company earnings. Combined with low valuation advantages, Hong Kong stocks may see a "Davis Double Play" in the second half of the year.
As of close, the total turnover of the Hang Seng Index reached HKD 150 billion, up from the previous day. The combined turnover of Shanghai and Shenzhen Stock Connect also expanded, indicating foreign investors remain highly attentive to the A-share market.
Overall, benefiting from liquidity improvements and fundamental enhancements, the Hong Kong stock market is ushering in a new round of structural opportunities. Investors should focus on opportunities from the Stock Connect expansion while reasonably controlling risks and selecting high-quality targets for allocation.
