A view of Hong Kong Photo: VCG

Goldman Sachs has significantly raised its 2025 forecast for southbound fund flows under the mainland-Hong Kong stock connects, raising the estimate from $75 billion to $110 billion, citing the growing attractiveness of Hong Kong stocks.

Goldman Sachs said in a report that the upward revision reflects the more attractive H-share profiles in terms of earnings growth, valuation and dividend yields, as well as the expanded investable universe due to newly listed and home-coming companies.

According to Goldman Sachs, southbound flows had the strongest start of the year and become the key capital driver for H shares. Southbound investors had $78 billion net buying year-to-date, 75 percent of the full-year inflows in 2024. Purchases of AI technology and high-dividend-yield stocks contributed $29 billion and $22 billion, about 65 percent of year-to-date Southbound inflows.

Southbound investors hold $577 billion worth of Hong Kong-listed stocks, accounting for 13 percent of the listed market cap of Southbound eligible stocks, up from 10 percent a year ago. Their turnover contribution rose from 17 percent in 2024 to 21 percent year-to-date on average, Goldman Sachs said.

Notably, various global financial institutions have also raised their forecast for Chinese stocks. In March, Goldman Sachs raised its target price for emerging markets stocks, projecting that the AI-powered rally in Chinese equities could boost other markets as well, according to Reuters.

Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Monday that there are two main reasons for growing southbound trading. 

First, the current valuation of Hong Kong stocks is relatively low, making them more attractive to investors; Second, Hong Kong stocks also attract a large amount of international capital, and the overall trend shows a clear upward momentum, Xi Junyang said.

China Galaxy Securities said in a research note on Monday that the central government's pledge to implement more proactive and effective macro policies amid "the uncertainty of drastic changes in the external environment" will also support a steady increase in the earnings of Hong Kong stocks. 

According to data from Chinese financial information services provider Wind, technology, consumer, and financial sectors have emerged as key focus areas for southbound funds.

In a blog post on April 13, Hong Kong's Financial Secretary Paul Chan Mo-po emphasized the city's readiness to proactively attract high-quality issuers from around the world to list in Hong Kong.

"The city already has a regulatory framework that facilitates dual or secondary listings for overseas listed companies. In light of recent global developments, I have instructed the Securities and Futures Commission and Hong Kong Exchanges and Clearing Limited (HKEX) to be fully prepared for the potential return of Chinese Concept Stocks listed abroad," Chan wrote.

"HKEX will also enhance its outreach and promotion in the ASEAN and Middle East markets to attract more quality enterprises from these regions to list in Hong Kong, while drawing in additional international capital and further strengthening Hong Kong's position as a global financial center," Chan wrote.