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Reuters
24-07-2025
- Business
- Reuters
Mainland China capital surge fuelling Hong Kong investment boom
HONG KONG, July 24 (Reuters) - Surging investment into Hong Kong by mainland Chinese investors is increasing market liquidity and depth while strengthening the island's position as a gateway to China. Short-term headwinds could slow this capital flood, but market innovation and the push for diversification are likely to propel this trend over time. The Stock Connect programme, launched by the Hong Kong, Shanghai and Shenzhen exchanges in November 2014, enabled mainland Chinese investors to trade selected stocks listed in Hong Kong – the so-called "Southbound Stock Connect" – while also facilitating flows in the opposite direction. The Connect programme was expanded between 2017 and 2023 to include bonds, ETFs and interest rate swaps. Since 2015, the first full year of the programme's operation, onshore trades through the Southbound route have grown at an impressive 32% compound annual growth rate. In fact, Southbound's share of average daily turnover grew from 1.6% in 2015 to 18% in 2024, according to data from the Hong Kong Exchange (HKE). Onshore investors have consistently bought more through Southbound than they have sold, resulting in net inflows every year since the programme began. The flows were healthy but somewhat volatile until 2023, after which they skyrocketed. Net inflows more than doubled in 2024, and that figure has been nearly matched in just the first six months of 2025. What explains this appetite for Hong Kong-listed stocks? Geographic diversification is clearly a strong motive, as mainland Chinese investors have limited avenues for owning overseas assets. Investors may also seek to gain exposure to companies in key sectors that are under-represented in domestic markets, such as technology or insurance. For example, leading Chinese internet platforms Tencent and Alibaba, insurance market leader AIA and global bank HSBC are not listed on onshore indices. However, many of stocks popular among mainland investors are listed both onshore and in Hong Kong, again raising the question of why capital is increasingly flooding into the latter. The answer may simply be price. Many of these dual-listed stocks trade at far cheaper valuations in Hong Kong than in Shanghai or Shenzhen. The average premium of onshore "A-shares", tracked by the Hang Seng AH Premium Index, was only 3.2% prior to the commencement of the Stock Connect programme. This figure jumped to 34.1% soon after, as international money flowed into mainland Chinese equities through Northbound Connect, inflating valuations. The premium remains elevated, though it has declined recently. The influx of capital has increased the Hong Kong equity market's liquidity and depth, making it increasingly attractive for local companies seeking new listings and for onshore Chinese companies seeking additional listings. Indeed, in the first half of 2025, Hong Kong has been the world's largest IPO market, with $14 billion of issuance, easily outstripping Nasdaq, which was in second place with just over $9 billion. At the same time, the Stock Connect programme has also strengthened Hong Kong's position as an offshore renminbi hub, as the HKE has argued, opens new tab, and driven robust cross-border regulatory cooperation, involving regular meetings and exchange of ideas. The flip side of the onshore money avalanche could be increased volatility in Hong Kong markets, especially given that the trading style of mainland Chinese investors has historically been characterised by rapid transition from one sector or theme, to another. For example, onshore investors flocked to the internet platforms Alibaba and Tencent, and technology giant Xiaomi, throughout 2024 and early 2025, only to sell significant volumes this past May and June. It is also possible that some common preferences among onshore Chinese investors, such as the attraction to high dividend yields, could begin to affect the relative performance of stocks in Hong Kong. CNOOC, China Construction Bank and China Mobile – all characterised by low growth but high dividends – have remained Southbound favourites this year, based on monthly "Top 10" lists. What could derail this exuberance? The potential weakening of the renminbi could be one headwind, as it would make HKD-denominated stocks more expensive for mainlanders. Additionally, improved performance among mainland markets could also discourage Chinese investors from overseas diversification. In 2025 so far, Hong Kong's Hang Seng index is up 23.8%, dwarfing the Shanghai Composite's 5.5% gain. A reversal of return prospects could obviously reverse the direction of flows. Finally, U.S.-China geopolitical tensions are a perennial bugbear. Hong Kong permits money to be moved in and out of the city without many restrictions, which exposes it to risks from such political conflicts. Any adverse political outcome could make Chinese investors more inclined to keep their capital onshore. However, most of these potential headwinds are likely short-term phenomena, and ultimately, the long-term direction of travel is clear. Mainland Chinese savings represent a gigantic pool of still mostly untapped capital. Total deposits at the end of June 2025 were RMB 320 trillion ($44 trillion), according to PBOC reports, opens new tab. And total overseas portfolio investments in March 2025 were only $1.58 t, opens new tabrillion, less than 4% of households' domestic deposits. The need for greater diversification among mainland Chinese investors thus remains significant, meaning the surge of capital into Hong Kong markets may just be getting started. (The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd. and the former head of Asia-Pacific Equity Research at BNP Paribas Securities.) Enjoying this column? Check out Reuters Open Interest (ROI),, opens new tab your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI,, opens new tab can help you keep up. Follow ROI on LinkedIn,, opens new tab and X., opens new tab
Zawya
01-07-2025
- Business
- Zawya
Trump's push for regulatory reform highlights ‘Treasury put': Jen
(The opinions expressed here are those of the author, the CEO and co-CIO of Eurizon SLJ asset management.) LONDON - There has been much discussion of the so-called "Trump put" for equities, but perhaps more attention should be paid to the administration's effective "Treasury Put". Given the high U.S. public debt burden, the government must keep interest rates under control, and that appears to be the primary motivation for the Trump administration's recent push to relax a key bank regulatory requirement. U.S. Treasury Secretary Scott Bessent on May 27 discussed progress made to relax the Supplementary Leverage Ratio (SLR) requirement for U.S. banks. The SLR was introduced in early 2018 as part of the Basel III bank regulations to help ensure large banks held sufficient capital. The SLR is a second layer on top of the normal capital requirement, which is why it is considered "supplementary". What is special about the SLR is that banks' holdings of Treasuries incur a capital charge, in contrast to the normal capital requirement, which assigns government bonds a zero-weighting for risk purposes. Based on the current SLR, large banks in the U.S. are charged a 5% capital fee, while smaller banks are charged 3%. NECESSARY REFORM It is widely accepted that the SLR needs to be relaxed because it appears to be hurting large banks' ability and capacity to provide market liquidity, a particular concern given how much Treasury issuance has exploded since the pandemic. Outstanding U.S. Treasuries, including those held by the Federal Reserve, rose from 100% of GDP prior to 2020 to around 120% now, exacerbating the disconnect between supply and demand. Fed Chair Jay Powell has weighed in, commenting in February 2025, "The amount of Treasuries has grown much faster than the intermediation capacity has grown, and one obvious thing to do is to lower the bindingness of (the SLR)." The Trump administration is supporting efforts to do just that, with an agreement to relax the SLR expected this summer. COST CONTROL Even though SLR reform is intended to improve liquidity and thereby support bank lending and economic growth, one of the Trump administration's other key motivations is clearly keeping a lid on government borrowing costs. Treasury Secretary Bessent indicated as much in his May 27 interview, stating that relaxing the SLR could "bring yields down by tens of basis points." With the caveat that it is very difficult to estimate the yield impact of SLR reform econometrically, there's reason to believe that Secretary Bessent could be right. Reducing the SLR should, in theory, lower yields by boosting bank demand for Treasuries. Market estimates suggest that a one percentage point SLR reduction could lower the 10-year Treasury yield by 10-50 basis points, depending on the circumstances. Based on this estimate, dropping the SLR charge by two percentage points – a likely reform – could double that. Based on that assumption, we would expect to see a 0.50 percentage point reduction in the 10-year yield, which is consistent with Secretary Bessent's statement of "a few tenths of a percent". 'BOND PUT' The Trump administration is keeping a close eye on the bond market. Secretary Bessent has long been clear that getting the U.S. fiscal deficit under control is one of his top priorities, but this will be difficult to achieve if interest rates are too high relative to economic growth. The Secretary's repeated references to a relatively obscure issue like SLR relaxation and its potential impact on Treasury yields only highlights this focus. Importantly, this is not just a matter of watching out for bond market ructions, which any administration would do. It's about taking action to try to keep yields down. In other words, there is more likely to be a Trump "bond put" rather than a Trump "equity put". Or to put it another way, the strike price on the former is likely to be a lot higher. LOOKING FORWARD Given the Trump administration's focus on the bond market and recent trends in U.S. inflation and economic activity, it is reasonable to assume that the 10-year U.S. Treasury yield could trade below 4.00% in the fourth quarter, down from its current level around 4.30%. While yields remain elevated, likely because of perceived fiscal risks, a prospective relaxation of the SLR could have the opposite effect by boosting demand for U.S. government bonds. To be sure, other economic, geopolitical or market factors could complicate this scenario. But if we do see lower bond yields, this should support risk assets and be negative for the dollar, and, perhaps most importantly, it may buy more time for the U.S. to deal with its fiscal challenges. (The views expressed here are those of Stephen Jen, the CEO and co-CIO of Eurizon SLJ asset management). Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X. (Writing by Stephen Jen; Editing by Anna Szymanski and Sam Holmes.)
