SHANGHAI, Feb 28 (Reuters) - China's mainland investors

have played an unprecedented role in a rally on Hong Kong's

equity market that has pushed the benchmark index to its highest

level since 2022.

Mainland investors typically buy or sell Hong Kong-listed

shares via the southbound link of the Stock Connect scheme.

WHY IT'S IMPORTANT

Hong Kong's stock market has risen around 15% this year to

reach its highest level since February 2022. The rally is fueled

by optimism about China's tech sector, particularly the rise of

home-grown AI startup DeepSeek.

In contrast to previous rallies, mainland investors have

this year taken a pivotal role, underscoring their growing

influence in the market. The shift has also led to a narrowing

of the premium of the onshore A-shares command over offshore

H-shares.

BY THE NUMBERS

Mainland investors bought Hong Kong shares worth a net HK$75

billion ($9.6 billion) this week, the highest weekly volume

since January 2021.

Southbound activity accounts for 25% of total market

turnover in Hong Kong, a nine percentage-point rise from lows in

September 2024, most of it coming from mainland retail and

private fund managers, data from UBS shows.

UBS said southbound investors are increasingly trading in

Chinese tech stocks, led by investments in Xiaomi ( XIACF ),

Tencent ( TCTZF ), and Alibaba ( BABA ).

The Hang Seng Stock Connect China A/H Premium Index

is at 131, its lowest since October 2024.

KEY QUOTE

Ximiao Chen, an analyst at Guotai Junan Securities, told a

conference on Wednesday the rally in Hong Kong was unprecedented

because mainland investors were leading the charge with foreign

investors following suit.

"In 2024, the major driver of the Hong Kong market was the

initial involvement of foreign investors, while mainland

investors were extremely pessimistic about the market," Chen

said.

($1 = 7.7783 Hong Kong dollars)