hk-connect-flow

# Stock Connect Fund Flow Analysis ## Overview Analyze capital flows through the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs. Northbound flows (foreign capital into A-shares) are a key institutional sentiment indicator for the China market; Southbound flows (mainland capital into Hong Kong) reveal mainland investor preference for HK-listed assets. Together they provide a real-time cross-border capital positioning signal. ## Core Concepts ### 1. Stock Connect Architecture | Channel | Direction | What It Measures | |---------|-----------|------------------| | Shanghai Connect Northbound | Foreign → A-shares (SSE) | Foreign institutional A-share appetite | | Shenzhen Connect Northbound | Foreign → A-shares (SZSE) | Foreign institutional A-share appetite (growth bias) | | Shanghai Connect Southbound | Mainland → HK (HKEX) | Mainland capital HK allocation | | Shenzhen Connect Southbound | Mainland → HK (HKEX) | Mainland capital HK allocation | **Daily quota**: Each channel has a daily net buy quota (~RMB 52B / HKD 42B). Quota utilization >50% = strong directional signal. ### 2. Northbound Flow Analysis (Foreign into A-shares) **Why Northbound matters:** - Foreign institutions (global funds, sovereign wealth funds, hedge funds) are considered "smart money" in A-shares - Northbound holdings represent ~4-5% of A-share free-float market cap — small but marginal price-setters - Northbound flow correlates with MSCI China index rebalancing and global EM allocation decisions **Northbound signal framework:** ```python # Daily Northbound net buy signals def northbound_signal(daily_net_buy_rmb_billion): if daily_net_buy_rmb_billion > 10: return "strong_foreign_buying" # Very large single-day inflow elif daily_net_buy_rmb_billion > 5: return "moderate_foreign_buying" elif daily_net_buy_rmb_billion > 0: return "mild_foreign_buying" elif daily_net_buy_rmb_billion > -5: return "mild_foreign_selling" elif daily_net_buy_rmb_billion > -10: return "moderate_foreign_selling" else: return "strong_foreign_selling" # Panic outflow # Cumulative flow trend (more important than single-day) def northbound_trend(flows_20d, flows_5d): cum_20d = sum(flows_20d) cum_5d = sum(flows_5d) if cum_20d > 30 and cum_5d > 10: return "sustained_accumulation" # Strong bullish for A-shares elif cum_20d < -30 and cum_5d < -10: return "sustained_distribution" # Bearish for A-shares elif cum_20d > 0 and cum_5d < 0: return "accumulation_pausing" # Watch for reversal elif cum_20d < 0 and cum_5d > 0: return "distribution_pausing" # Possible bottom formation ``` **Northbound sector allocation patterns:** | Sector Preference | Typical Holdings | Signal | |-------------------|-----------------|--------| | Consumer staples (Moutai, dairy) | 30-35% of holdings | Core allocation, low turnover | | Financials (banks, insurance) | 15-20% | Cyclical allocation, rate-sensitive | | Technology (semiconductors, software) | 10-15% | Growth allocation, high turnover | | Healthcare (CXO, innovative pharma) | 8-12% | Structural growth bet | | New energy (EV, solar) | 5-10% | Thematic, high volatility | **Sector rotation signal:** - When Northbound increases consumer staples weight → defensive positioning - When Northbound increases tech/new energy weight → risk-on, growth chasing - When Northbound reduces across all sectors → broad risk-off, usually FX-driven (CNY weakening) ### 3. Southbound Flow Analysis (Mainland into HK) **Why Southbound matters:** - Mainland investors are the marginal buyer for many HK mid/small caps - Southbound flows are driven by: AH premium (A vs H discount arbitrage), dividend yield hunting, and tech platform allocation (Tencent, Alibaba, Meituan) - Insurance and pension funds increasingly use Southbound for international diversification **Southbound signal framework:** ```python # Southbound focus areas southbound_targets = { "tech_platforms": ["0700.HK", "9988.HK", "3690.HK", "9618.HK"], "high_dividend": ["0939.HK", "1398.HK", "0883.HK", "2628.HK"], "ah_discount": [], # Dynamically calculated based on AH premium index } def southbound_signal(daily_net_buy_hkd_billion): if daily_net_buy_hkd_billion > 5: return "strong_mainland_buying" elif daily_net_buy_hkd_billion > 2: return "moderate_mainland_buying" elif daily_net_buy_hkd_billion < -2: return "mainland_selling" else: return "neutral" ``` **Southbound investment patterns:** 1. **Dividend yield arbitrage**: mainland funds buy HK-listed banks/telecoms for higher dividend yield (H-share dividends are often 2-3% higher than A-share equivalents due to lower prices) 2. **Tech platform allocation**: Tencent, Alibaba, Meituan are HK-only or HK-primary listings; mainland tech allocation must go Southbound 3. **AH premium arbitrage**: when AH premium index >130, arbitrage capital flows Southbound to buy cheaper H-shares ### 4. AH Premium Index The Hang Seng AH Premium Index (HSAHP) tracks the average premium of A-shares over their H-share counterparts for dual-listed companies. ```python # AH Premium interpretation ah_premium_index = 130 # A-shares trade 30% above H-shares on average if ah_premium_index > 140: signal = "extreme_ah_premium" action = "favor H-shares over A-shares for dual-listed names" elif ah_premium_index > 125: signal = "elevated_ah_premium" action = "mild H-share preference" elif ah_premium_index < 110: signal = "compressed_ah_premium" action = "A-shares relatively cheap vs H; unusual, investigate" else: signal = "normal_range" ``` ### 5. Cross-Border Flow Composite Signal **Multi-dimensional scoring:** ```python connect_score = { "northbound_flow": 0, # -2 to +2: 20-day cumulative NB flow direction "northbound_breadth": 0, # -2 to +2: number of NB top-10 holdings being added to "southbound_flow": 0, # -2 to +2: 20-day cumulative SB flow direction "ah_premium": 0, # -2 to +2: AH premium level (high = favor HK) "fx_direction": 0, # -2 to +2: CNY strength (strong CNY = NB inflow support) } # Total range: -10 to +10 # > +5: strong cross-border risk-on, favor A-shares # +2 to +5: mild bullish # -2 to +2: neutral / mixed # < -2: cross-border risk-off, foreign selling A-shares # < -5: strong risk-off, likely FX-driven ``` ## Data Access ### Via Tushare (A-share perspective) ```python import tushare as ts pro = ts.pro_api() # Daily Northbound/Southbound aggregate flows df = pro.moneyflow_hsgt(start_date="20260101", end_date="20260330") # Columns: trade_date, ggt_ss (Shanghai SB), ggt_sz (Shenzhen SB), # hgt (Shanghai NB), sgt (Shenzhen NB), north_money, south_money # Top 10 Northbound active stocks df = pro.hsgt_top10(trade_date="20260328", market_type="1") # 1=Shanghai, 3=Shenzhen # Columns: trade_date, ts_code, name, close, change, rank, market_type, # amount (trade amount), net_amount (net buy), buy, sell ``` ### Via yfinance (HK perspective) ```python import yfinance as yf # HK-listed stocks price data tencent = yf.download("0700.HK", start="2025-01-01", end="2026-03-30", progress=False) alibaba = yf.download("9988.HK", start="2025-01-01", end="2026-03-30", progress=False) # AH Premium Index (proxy via Hang Seng indices) hsi = yf.download("^HSI", start="2025-01-01", end="2026-03-30", progress=False) ``` ### Key Data Points to Track | Metric | Source | Frequency | Threshold | |--------|--------|-----------|-----------| | Northbound daily net buy | Tushare / HKEX | Daily | >RMB 5B = significant | | Northbound 20-day cumulative | Calculated | Daily | >RMB 30B = trend | | Southbound daily net buy | Tushare / HKEX | Daily | >HKD 3B = significant | | AH Premium Index | Hang Seng | Daily | >130 = H-share value | | Quota utilization | HKEX | Intraday | >50% = strong conviction | | NB Top 10 concentration | Tushare | Daily | Top 3 names >50% = concentrated bet | ## Output Format ``` ## Stock Connect Flow Analysis — [Date Range] ### Northbound (Foreign → A-shares) - **20-day cumulative**: [+/- RMB X.XB] - **5-day trend**: [accelerating / decelerating / reversing] - **Daily average**: [RMB X.XB] - **Quota utilization**: [X%] - **Signal**: [sustained accumulation / distribution / neutral] ### Northbound Sector Allocation - **Adding to**: [sector1 (top names), sector2] - **Reducing**: [sector1, sector2] - **Rotation direction**: [defensive / cyclical / growth] ### Southbound (Mainland → HK) - **20-day cumulative**: [+/- HKD X.XB] - **Focus names**: [Tencent, Alibaba, bank names] - **Driver**: [dividend yield / tech allocation / AH arbitrage] ### AH Premium - **Current index**: [XXX] - **Historical percentile**: [X%] - **Implication**: [favor H-shares / neutral / favor A-shares] ### Composite Signal | Dimension | Score (-2~+2) | Basis | |-----------|---------------|-------| | NB flow | +1 | Cumulative +RMB 15B over 20 days | | NB breadth | +2 | Adding across 8 of top 10 | | SB flow | 0 | Flat | | AH premium | -1 | AH premium at 135 (H relatively cheap) | | FX | +1 | CNY stable/strengthening | ### Cross-Market Implication - **A-share outlook**: [bullish / neutral / bearish] (NB perspective) - **HK outlook**: [bullish / neutral / bearish] (SB + AH perspective) - **Arbitrage**: [AH premium trade: buy H / sell A for dual-listed names] ``` ## Notes - Northbound flow is the single most-watched institutional indicator for A-shares; it often leads index turns by 1-3 days - Quarter-end and MSCI rebalancing dates (Feb/May/Aug/Nov) cause mechanical flow distortions — filter these out for signal purity - CNY/USD exchange rate is a key driver of Northbound flow; USD strength typically triggers NB outflows regardless of A-share fundamentals - Southbound flow can be distorted by dividend arbitrage (mainland funds buy before ex-div, creating artificial inflow spikes) - Stock Connect data is freely available from HKEX website and Tushare API - This framework is for research purposes only and does not constitute investment advice