In July 2026, the Hong Kong stock market received multiple positive factors. On July 28, Hong Kong Exchange announced the further expansion of the Stock Connect eligible stock list to over 1,000 securities, along with optimization of the RMB dual-counter trading mechanism. Meanwhile, mainland and Hong Kong regulators jointly launched several connectivity optimization measures, including reducing trading costs and extending trading hours, aiming to enhance the international competitiveness of the HK stock market and its appeal to mainland investors. This series of policy combinations has made "Why choose HK stocks?" a hot topic again in the investment community.

Policy Dividends Released Intensively, HK Stock Liquidity Significantly Improved

Since end-2025, the Stock Connect mechanism has been continuously upgraded. On July 15, 2026, the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission jointly announced raising the daily quota of Stock Connect to 80 billion RMB and removing the aggregate quota limit. On July 28, HKEX further announced that from August 1, the number of tradable stocks under Stock Connect will expand from about 500 to over 1,000, covering large-, mid-, and small-cap stocks in the Hang Seng Composite Index and some specialty technology companies. This move significantly broadens the selection range for mainland investors, especially increasing exposure to emerging industries.

In addition, RMB dual-counter trading has been fully implemented in 2026. Currently, over 30 Hong Kong stocks have RMB counters, with trading volume up more than 300% year-on-year. This not only reduces currency risk but also attracts more RMB-holding investors to directly participate in HK stocks. The CEO of HKEX said: "The expansion of Stock Connect and the RMB dual-counter are important milestones in the internationalization of the HK stock market, attracting more mainland capital southward and improving HK stock pricing efficiency."

Southbound Capital Accelerates, HK Stock Valuation Discount Effect Highlights

According to the latest data from HKEX, net southbound capital inflow into the HK stock market reached 450 billion HKD in Q2 2026, up 62% year-on-year. In the first 28 trading days of July, cumulative net southbound inflow exceeded 120 billion HKD, with technology, consumer, and pharmaceutical sectors being the main destinations. The core driver is that HK stock valuations are low among major global markets. The Hang Seng Index currently has a P/E ratio of about 9.8x, below the historical average of 11.5x and significantly lower than the S&P 500's 21x. The A-H share premium index remains above 140, indicating that most A+H shares are at a notable discount in Hong Kong.

CITIC Securities' latest research report noted: "Hong Kong stocks have become a global value trough. With the expansion of Stock Connect and optimization of trading mechanisms, mainland capital's willingness to allocate to HK stocks will further strengthen. Especially in the new economy sector, HK stocks provide many scarce targets for A-shares, such as internet platforms and innovative drug companies."

Unique Advantages of HK Stocks: Diversification and Flexible Mechanisms

Compared to A-shares, the HK stock market has multiple unique advantages. First, the HK market is more international, gathering global capital and having a diverse investor base. Second, HK stocks allow T+0 trading with no price limit restrictions, offering flexible mechanisms suitable for short-term strategies. Third, the HK IPO market is active; in H1 2026, 85 new stocks were listed with total fundraising exceeding 200 billion HKD, many being pre-revenue biotech and specialty tech companies, meeting demand for high-growth targets. Fourth, HK stocks provide convenient channels through the RMB dual-counter and Stock Connect, making cross-border capital flows increasingly smooth.

Mainland investor Mr. Wang said in an interview: "I have been investing in HK stocks through Stock Connect for three years. With the recent expansion, I can buy more stocks, and the dual-counter reduces currency exchange hassles. The valuations of HK tech stocks are much lower than their A-share counterparts. I plan to increase my allocation."

Risk Warning and Investment Strategy

Despite the positive outlook, investors should still be aware of risks. HK stocks are significantly affected by global macroeconomics and Fed policy, and currency fluctuations may impact returns. Moreover, some small-cap stocks have insufficient liquidity, requiring caution. Industry insiders suggest that investors can diversify risk through Stock Connect index funds or select fundamentally sound leading stocks, while monitoring southbound capital flows and policy changes.

GF Securities' latest report recommends focusing on new targets from the Stock Connect expansion, especially mid-cap stocks with a market cap between 10-50 billion HKD, as these companies often have high growth potential and reasonable valuations. Additionally, against the backdrop of property policy easing and consumption recovery, HK real estate and consumer stocks are worth watching.

Outlook: HK Stock Market Poised to Attract Long-term Capital

Looking ahead to H2 2026, the market generally expects further optimization of Stock Connect, such as including more ETF products and easing investor access thresholds. As mainland residents' asset allocation diversification needs rise, Hong Kong stocks, as an important gathering place for offshore RMB assets, will attract more long-term capital. According to Morgan Stanley's forecast, by 2027, cumulative net southbound capital inflow into HK stocks is expected to exceed 3 trillion HKD, and HK stock trading volume will hit new highs.

Overall, policy dividends, valuation appeal, and mechanism optimization have jointly enhanced the investment value of HK stocks. For mainland investors, re-evaluating HK stock allocation at this point may be the right time. As the Chairman of HKEX said: "The HK stock market is standing at a new starting point, embracing capital dividends from the mainland and the world."