The market usually refers to the total inflow of funds from Shanghai Stock Connect and Shenzhen Stock Connect as northbound funds. In other words, northbound capital refers to the capital flowing from Hong Kong into the mainland stock market, while the capital flowing from the mainland into the Hong Kong stock market is called southbound capital. Since the opening of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect in 214, the flow of northbound funds has been highly positively correlated with the ups and downs of the market for many times. Smart money? , has a certain indication of the trend of the market.

northbound funds are mainly medium-and long-term investments. How to understand the occasional short-term behavior? Medium and long-term investment in northbound funds accounts for 7%? About 8%, short-term funds account for 25% to 3%, and they contribute greatly to the transaction volume, and most of the inflows and outflows are caused by this part of funds. Overseas long-term allocation funds, most of which are hosted in foreign bank seats; For the convenience of transaction, hedge funds and quantitative funds are mostly managed by PB system of foreign investment banks, while they are managed by Chinese brokerage institutions.

northbound funds are regarded as the weather vane of market changes. In recent two years, when the market fluctuated, northbound funds had many times faced adjustment in the broader market, and there was a large net outflow. Take the recent northbound capital flow as an example. For example, on July 16 and July 24, northbound capital outflows were 6.9 billion yuan and 16.3 billion yuan, while the Shanghai Composite Index fell by 4.49% and 3.86% respectively in these two days.

The investment and allocation strategy of northbound capital always focuses on industries or sectors with national competitive advantages. From a horizontal perspective, they are mainly equipped with semiconductors in Taiwan Province stock market and electrons in Korean stock market. This has the same effect as the theme investment strategy of "tuyere plus leading".

The influence of the northbound capital market is increasing, and the total amount has approached the size of Public Offering of Fund's positions. Northbound capital is an important source of incremental capital. In 219, the internationalization of A-shares brought a rapid inflow of northbound funds. MSCI promoted the A-share ratio to 2%, joined the FTSE Russell Index and other internationalization processes, and promoted the northbound capital to flow into the domestic market. In 219, the net inflow of northbound funds reached 361.5 billion yuan, making it the largest annual net inflow since the opening of Shanghai-Hong Kong Stock Connect.

the scale of northbound funds is close to the scale of public offering positions. According to the data, the scale of northbound capital positions at the end of 219 was 1.1175 trillion; The position of public funds at the end of 219 was 1.282 trillion.

Up to now, the allocation of northbound funds to A-shares is mostly consumption, followed by industrial and financial real estate, followed by scientific and technological themes. From the perspective of the allocation of northbound funds in major industries, consumption accounts for 46.8%, followed by industrial and financial real estate, accounting for 21.5% and 19% respectively, and the allocation of science and technology themes accounts for 12%, which is less than consumption in the short term, but shows a slow growth trend. From the analysis of the trend in the last month, northbound funds have obviously increased their positions in the five major industries of electronics, banking, electrical equipment and chemical industry.

In addition, the focus of centralized buying of northbound funds is different at different stages. The relative strength of the market's confidence in the theme industries largely determines the capital flow of each theme industry, which is also an important reason for foreign investment to increase the allocation of medicine, science and technology and some cyclical sectors of recovery in 219.

from the analysis of the heavy stocks of northbound funds, northbound funds mainly allocate leading stocks, and their positions are relatively concentrated. It prefers large market value, high dividends and low valuation targets. In addition, the stability of performance is greater than growth.

Profitability and stability of performance are also the focus of evaluating individual stocks, and stability of performance has higher priority and greater weight than simple high ROE. Northbound capital stock selection pays more attention to the stability of performance, which will lead to the switch of the long-term pricing system of A shares.

There is still a large room for the medium-term incremental entry of northbound funds into the market. The layout of foreign capital A shares is still in the initial stage, and the long-term inflow situation remains unchanged.

according to the data of China administration of foreign exchange, at the end of 218, the market value of foreign ownership in the capital markets of the United States, Japan, South Korea and Brazil ranged from 15% to 35%, while the A-share market in China only reached 3.2% at the end of the third quarter of 219. Assuming that foreign capital can hold 15% of the total market value in China for a long time, there are at least trillions of incremental funds to wait.

stability first, focusing on the most advantageous industries, requires more stability than growth.

Through the in-depth analysis of northbound funds, we can learn a few things from our investment:

1. Our investment style is stable, and we prefer high-quality consumption blue chips, focusing on major market value, high dividends and low valuation, and our style will not deviate significantly;

2. The proportion of theme industries is concentrated in the industries with the most competitive advantages, which is similar to the slogan thinking of theme investment;

3. In the selection of leading stocks, the stability of performance is greater than the growth.

the short-term market vane guides the transformation of market valuation and pricing system in the medium term. The admission process of foreign capital in China's capital market shows its sharp point.

The internationalization and institutionalization of A-shares has just started, and it is accelerating. Short-term centralized inflow and outflow will bring short-term benefits to the market. Herd effect? The great transformation brought by the medium term to the market valuation and pricing system has just begun, and the medium term trend is clearly visible.