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:

# 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