The first quarter of 2025 witnessed an extraordinary leap in trading activity at the Hong Kong Stock Exchange (HKEX), with average daily turnover skyrocketing to unprecedented levels. This remarkable growth, driven by robust Southbound trading, reflects a significant structural shift in global investment patterns and highlights the resilience of Hong Kong's financial market amid global uncertainties.

Discover the Driving Forces Behind Hong Kong's Financial Renaissance

Record-Breaking Trading Volumes

The Hong Kong Stock Exchange experienced its most active quarter ever in Q1 2025, as evidenced by an average daily turnover that surged by 144% year-on-year and 30% quarter-on-quarter. This milestone achievement underscores the growing appeal of Hong Kong's financial markets. The surge was significantly fueled by Southbound trading, which contributed a staggering HK$110 billion, representing a 255% increase compared to the previous year and a 41% rise from the preceding quarter. Analysts attribute this impressive performance to both short-term speculation and long-term fundamentals reshaping investor preferences.Moreover, the proportion of Southbound trading has climbed to constitute 23% of total average daily turnover, indicating a fundamental change in liquidity dynamics. This trend is not merely cyclical but indicative of enduring shifts in how investors perceive and engage with Hong Kong-listed securities. As global economic conditions fluctuate, the resilience of Southbound trading becomes increasingly vital for sustaining market momentum.

Strategic Shift in Liquidity Dynamics

A pivotal factor contributing to the heightened activity at HKEX involves a strategic realignment of liquidity away from U.S.-listed Chinese ADRs. Over recent quarters, concerns regarding potential delisting risks have prompted a notable migration toward secondary listings on the Hong Kong Stock Exchange. From the third quarter of 2024 to the first quarter of 2025, the share of turnover attributable to 12 secondary-listed companies expanded from 23% to 30%. This transition exemplifies a broader trend where investors seek stability and regulatory clarity within their portfolios.This movement signifies more than just a geographical shift; it represents a recalibration of risk tolerance and strategic positioning among global investors. Amidst geopolitical tensions and evolving trade policies, such as those emanating from the United States, the allure of Hong Kong’s regulatory framework grows stronger. Investors are increasingly drawn to the perceived safety and reliability of Hong Kong-listed equities, fostering a fertile environment for sustained growth.

Bullish Outlook Amid Geopolitical Challenges

Despite persistent geopolitical headwinds, analysts maintain an optimistic stance regarding the future trajectory of HKEX. CGS International reiterates its "Add" rating, projecting substantial earnings growth ranging from 8% to 29% over fiscal years 2025 through 2027. This bullish outlook is anchored in the anticipated proliferation of high-quality initial public offerings, supportive policy measures, and enhanced performance of the Hang Seng Index. Such catalysts could potentially propel a re-rating of the exchange, amplifying its attractiveness to global investors.Conversely, potential downside risks remain, particularly concerning lower interest rates impacting investment income and escalating geopolitical tensions. These factors necessitate vigilant monitoring to ensure continued market strength. Nonetheless, the underlying fundamentals driving increased trading volumes and liquidity migration suggest a promising horizon for Hong Kong's financial ecosystem. As the global investment landscape continues to evolve, HKEX stands poised to capitalize on emerging opportunities and solidify its position as a premier financial hub.