In just under three months, net southbound inflows through the Stock Connect scheme have exceeded HKD 400 billion, a record-breaking wave of mainland capital into Hong Kong’s stock market. That’s more than HKD 200 million every trading hour. From AI healthcare to traditional banks, and now to retail and lifestyle brands, mainland funds are picking winners. This wave of southbound investment is doing more than lifting stock prices but is actually reshaping the whole Hong Kong market.

The scale of capital flowing into Hong Kong from the mainland is unlike anything we’ve seen in years. According to Wind data, the year-to-date net purchases via southbound Stock Connect have already topped HKD 400 billion, more than five times higher than the same period last year.

That kind of market share gives the Chinese capital more influence than ever. The way stocks are valued, which sectors are favored, and how volatility is managed are now all being shaped more by mainland tastes than international ones.

Mainland Funds are Taking Aggressive Moves

Mainland funds are not shy about showing their hand. Foresight Fund recently bought over 2 million shares of Gushengtang (02273.HK), a Chinese medicine firm, spending over HKD 76 million in a single deal. E Fund has been actively increasing its positions in JOINN Laboratories (06127.HK) and Dongyue Group (0189.HK).

On the other side, they are aggressively backing tech innovators. Companies like Meituan (3690.HK), BYD (1211.HK) and Kuaishou (1024.HK) are receiving billions in inflows as investors chase growth in e-commerce, electric vehicles and social media powered by AI. These trades reflect a long-term trend for institutions to target growth areas like such as AI and tech-powered healthcare.

One of the biggest surprises of Q1 has been the sharp rebound in consumer sector investments. In the past month, nearly HKD 100 billion has flowed into non-essential consumer stocks through the southbound link. That’s more than double the amount that went into the tech sector. On the other side, traditional dividend plays are coming back into favor. Stocks in electricity and banking are attractive for their steady returns and policy support.

This shift reflects a bet that China’s consumption story is back on track. After a prolonged period of caution, investors are once again optimistic about household spending, travel, leisure, and lifestyle-related sectors. Government incentives to boost domestic demand are helping. So is the gradual improvement in job markets and consumer confidence.

Hong Kong is Becoming a Semi-onshore Market

This shift in capital flows is changing the nature of the Hong Kong stock market itself. For decades, it was considered a more like a offshore venue, or a neutral ground for global investors to access Chinese companies. But with mainland investors now dominating trade volume, that offshore character is fading.

Some analysts call it a semi-onshore market. That means valuations, volatility, and investor behavior are beginning to resemble the dynamics of mainland exchanges. Stocks that appeal to mainland preferences are seeing stronger support from institutional investors and have higher valuations.

Some global funds are riding the wave of mainland capital into Hong Kong, but growing uncertainty overseas is adding to that hesitation. The United States is preparing to roll out a new round of broad tariffs in early April, targeting a wide range of imports and certain industries, including autos, steel, and aluminum. These moves could further strain trade relationships and complicate global investment flows.

At the same time, many investors are closely watching for stronger signals from China’s economic fundamentals. The Foresight Funds noted that global investors are looking at whether the property sector is stabilizing, whether producer prices are improving, and how pricing trends for consumer companies are evolving. They point to the combined effect of AI breakthroughs, improving policy conditions, and sustained capital inflows as reasons for optimism, especially in underperforming sectors like healthcare and consumer goods.

What It Means for Investors

Once a neutral ground for offshore investors, Hong Kong is noow becoming a front line in China’s financial strategy. Mainland funds are not just participating, they are leading and setting the momentum, shaping the valuations, and reordering sector priorities.

For Asian and global investors, the landscape is changing fast. Many are still cautious, waiting for stronger economic signals before diving in. But the pace and scale of mainland inflows suggest that the transformation is already well underway. As confidence builds around policy support and structural growth themes, the influence of mainland capital is only set to grow.