Northbound funds have always been hailed as "smart money" by the market. Many investors want to know the flow of northbound funds to provide reference for their trading decisions. So what impact will the inflow of funds from the north have on the stock market? What will happen to A-shares after the inflow of funds from the north?

1. Bring about a rise in the stock market

Northbound funds are what people often call hot money, because northbound funds have always been sensitive to economic cycles and industry prosperity. Although the total amount of northbound funds does not account for a large proportion of the total market value of A-shares, in recent years, the amount of northbound funds for A-shares has become larger and larger.

Northbound funds can be regarded as incremental funds in the market. The stock market is driven by funds, and the expansion of incremental funds will generally drive the rise of the stock market. On the contrary, if capital flows northward, it will most likely lead to a market decline.

As for individual stocks, most funds from the north are concentrated in mid-to-high market capitalization stocks, with a preference for stocks with solid operating performance and high returns. Therefore, the inflow of northbound funds has a relatively large impact on individual stocks. Stocks purchased by northbound funds tend to be more resistant in falling markets.

2. Exacerbating irrational market behavior

The purpose of northbound capital inflows is to obtain the dual expected returns from the exchange rate and the stock market, rather than to support the development of the A-share market. A-shares are a stock market dominated by retail investors. If the market cannot retain funds from the north, investors may be cut off by the funds from the north.

However, the inflow of foreign capital to a certain extent shows that foreign capital is optimistic about the domestic market, and the development of the domestic economy also requires financial support. Therefore, in general, the inflow of capital from the north is a good thing for A-shares. Investors can also understand the flow of funds going north to judge the market direction.

The above content about the impact of northward capital inflows on the stock market, I hope it will be helpful to everyone. Warm reminder, financial management is risky, so investment needs to be cautious.