Investors can analyze the northbound capital flow through the number of net purchases and net sales of land stock connect: the net purchase of land stock connect is negative, which means that it will be sold northbound. If it is sold continuously, the probability of future decline is high. On the contrary, the net purchase of land stocks shows that the northbound funds are flowing in and the market outlook is bullish.
Many institutions, foreign investors and retail investors in Hong Kong have to go through the Hong Kong Central Clearing and Registration System to settle their A-share funds, so the money from the northbound funds will be deposited with the Hong Kong Trading and Clearing Corporation. Therefore, investors should not be surprised to see that both buyers and sellers are Hong Kong Trading and Clearing Company in the trading software.
What does the inflow of capital northward mean?
Northbound funds are also known as hot money and smart funds. In the stock market, the capital from the north has more foresight advantages than the capital from the mainland. Because northbound funds have wider information channels than mainland funds, they are relatively sensitive to the market and are good at digging deep into value stocks.
The trading of northbound funds often represents their judgment on the trend of the mainland stock market, so the flow of northbound funds will generally drive mainland funds to follow.
On the whole, the inflow of northbound funds is good for A shares. According to past experience, the market performance is likely to improve after a large number of A shares are bought by northbound funds. After all, capital is the main driving force for the stock market to rise. On the other hand, if funds from the north flee for a short time, it often indicates that the A-share market is weak, and investors should pay attention to preventing risks.
Capital is profit-seeking. During the period of RMB appreciation, a large amount of Hong Kong funds and international funds will flow into the mainland to obtain the expected benefits brought by RMB appreciation.