As the Hong Kong stock market approaches a significant support level following its recent adjustments, an intriguing trend has emerged: the premium of the A-H share market index is on the rise once moreThis phenomenon is notably marked by a resurgence of funds flowing into the market, with industrial capital beginning to reassert its influence through share repurchases while the willingness for capital to head south increasesThis article seeks to unpack these developments and their implications for investors.

In recent weeks, southern capital has once again established itself as a dominant force in the market, with net inflows reaching impressive figuresSpecifically, last week, the net inflow totalled 24.424 billion Hong Kong dollars, which is a new high since late June of this yearDuring the ongoing week from October 21 to 23, southern money saw a net inflow of 27.736 billion Hong Kong dollars

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Remarkably, on October 21 alone, the net inflow soared to 12.43 billion Hong Kong dollars, setting a new record since March 23. These figures are not just numbers; they reflect a growing confidence among mainland investors regarding the Hong Kong market.

When we dive deeper into the sectors benefiting from this influx of capital, it appears that southern funding is favoring a 'barbell strategy,' combining technology and dividend-paying stocksOver the past week, the stocks that saw the most net buying by southern capital included heavyweight players like Alibaba, Semiconductor Manufacturing International Corporation (SMIC), Hang Seng Index ETF, Xiaomi Group, Tencent Holdings, and othersNotably, Alibaba and Tencent remain significant components of the Hang Seng Tech Index, underscoring the appetite for tech-centric investments.

By October 23, the total net purchases by southern capital had reached a staggering 567.729 billion Hong Kong dollars

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If this inflow pace continues, we might be looking at a record-setting year for net purchases, surpassing the all-time high seen in 2020, where the figure was 672.1 billion Hong Kong dollarsThis upward trend suggests a possible rejuvenation of investor confidence in Hong Kong stocks, hinting that the market might be entering a new growth phase.

In addition to external capital flows, there is a noteworthy uptick in share buybacks within the Hong Kong stock market, further emphasizing a bullish sentiment among industrial capitalData reveals that last week, there were 238 buyback cases, an increase of 44 from the previous week, marking a resurgence above the 80th percentile of the year's activityAs of October 23, a total of 253 Hong Kong stocks have initiated buybacks this year, with 55 of these exceeding 100 million Hong Kong dollars in total buyback amountsOverall, the buyback amounts have crossed 220 billion Hong Kong dollars, demonstrating strong institutional support.

Companies like Tencent Holdings, Meituan, Xiaomi Group, and Kuaishou are leading the charge within the Hang Seng Tech Index, having executed significant buybacks this year, further reflecting their commitment to enhancing shareholder value and stabilizing market prices

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These persistent buyback activities are crucial as they not only improve investor confidence but also provide a safety net against market volatility.

Looking ahead, various analysts are weighing in on where the Hong Kong market might be headedAccording to CITIC Construction Investment, the technology and internet sectors are showing clear signs of profit recovery, benefiting from a robust environment characterized by dividend promotions and repurchase activityHence, these sectors are of paramount interest to investors.

Meanwhile, according to Pu Yin International, the initial phase of the current bull market seems to have concluded, and the market might now be entering a consolidation phase characterized by fluctuationsTheir advisory emphasizes the importance of focusing on stocks that had previously lagged behind but exhibit solid fundamentals and potential for medium to long-term investment, including high-quality dividend stocks that stand to benefit from declining interest rates.

Guotai Junan holds a similar view, asserting that a decline in valuation and an increase in risk premiums suggest remaining upward potential

They cite global central banks entering a phase of monetary easing and look forward to supportive domestic policies, which could help lift both the market sentiment and valuation ratios.

On the other hand, Tianfeng Securities shares an optimistic outlook, indicating that as expectations gradually stabilize and the fundamentals improve, Chinese concept stocks in the Hong Kong market present attractive valuation levels with a favorable risk-return profile.

Focusing specifically on the technology sector, investors are encouraged to pay closer attention to artificial intelligence and the burgeoning electric vehicle marketProducts like ETFs associated with the Hang Seng Tech Index and related funds such as the China Southern Asset Management’s Hang Seng Technology ETF should be considered due to their potential to capitalize on the growth trends in these sectors.

Moreover, while investing in ETFs, it’s crucial to note the performance of the Hang Seng Tech Index, which has experienced a mixed bag over the years from 2019 to 2023, highlighting both high returns in certain intervals and significant downturns in others

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