(Source: Economic Reference Daily)
Regulatory guidance on insurance funds investing in HK Stock Connect ETFs has been further clarified. Multiple insurers recently received a letter titled "Letter on Clarifying Regulatory Guidelines for Insurance Funds Investing in HK Stock Connect ETFs." The letter specifies that insurance institutions eligible to invest in stocks via the HK Stock Connect may invest in HK Stock Connect ETFs, subject to the same regulatory requirements applicable to such stock investments. This regulatory framework takes effect on 9/20.
On 8 month 18, the National Financial Regulatory Administration expressed support for mainland insurance institutions to invest in funds traded on the Hong Kong Stock Exchange via the Stock Connect; on 9 month 23, SEC Hong Kong Chief Executive Leung Fung-yee publicly confirmed that mainland insurance funds have officially entered ETF Connect. According to Wind data, as of the end of 9, there were 31 ETFs included in the Stock Connect with a combined size of 3219 billion yuan, all equity-based. Data from the Financial Regulatory Administration shows that by the end of Q2 2026, the balance of insurance fund utilization exceeded 40 trillion yuan, with 6.39 trillion yuan invested in stocks and securities investment funds, an increase of 6907 billion yuan from the beginning of the year. This means that, in addition to stocks under the Stock Connect, qualified insurance funds now have access to a new standardized, high-transparency tool for investing in HK stocks, further expanding cross-border investment channels.
Does not use QDII quota
The core of this regulatory guidance is to clarify that ETFs under the Stock Connect with Hong Kong are investable, linking allocation permissions directly to existing Stock Connect qualifications. Insurance institutions with the capability to invest in Stock Connect stocks may enter the market without additional approval; those without such capability may delegate qualified managers to operate on their behalf.
Compared to QDII, HK Stock Connect ETFs do not consume QDII quotas and offer a more convenient trading mechanism.
Reporters learned that the industry has already built a solid foundation. According to industry feedback, among the 162 institutions engaged in overseas investment, 127 offer Stock Connect (Hong Kong) services, accounting for approximately 78%. At the insurance asset management level, 30 institutions are conducting investments through entrusted accounts or by issuing insurance asset management products, representing about 79% of the total. This provides an existing institutional and operational framework for launching HK Stock Connect ETFs. Multiple insurance institutions have welcomed the policy, with some asset management units already preparing for implementation. A senior executive at a major insurance asset management firm stated that HK Stock Connect ETFs represent an excellent investment vehicle; they have been closely monitoring the launch of this channel. The move will enable insurance capital to diversify its portfolio and better mitigate risk.
ETFs under the Stock Connect and QDII funds are not simple substitutes. Tian Lihui, a finance professor at Nankai University, notes that QDII funds can allocate more broadly to overseas markets, whereas Southbound ETFs must maintain at least 60% exposure to stocks eligible for the Stock Connect. In terms of investment mechanics, QDII operates through domestic fund managers investing abroad, while Stock Connect ETFs trade directly on the secondary market via the interconnection mechanism. Both channels will likely coexist long-term with distinct roles. Zhu Junsheng, a postdoctoral researcher and professor in applied economics at Peking University, adds that although Stock Connect ETFs do not consume QDII quotas, their investment scope and trading rules remain constrained by the Stock Connect framework. They are not unrestricted offshore investment vehicles. The key future question is not which channel replaces the other, but how they can complement each other.
For insurers, ETFs enable diversification of single-stock risk through a basket of assets and facilitate index-based and sector allocation. Hong Kong stocks generally trade at a discount, offering a margin of safety and valuation advantages. Additionally, Hang Seng Stock Connect ETFs are currently exempt from stamp duty, reducing transaction costs. These factors collectively drive the real-world momentum for insurer capital to allocate into Hang Seng Stock Connect ETFs. According to Dongwu Securities' research insights, while Hang Seng Stock Connect ETFs—which include cross-border investment products—could become a new breakthrough point for mainland insurers seeking overseas investments, high-yield fixed-income assets abroad better align with current allocation needs. Overseas equity assets, however, are not yet substantial enough to serve as the primary allocation focus in the short term.
Long-term capital inflows remain to be seen.
The deeper rationale behind the policy adjustment is the escalating pressure on insurers to allocate assets in a low-interest-rate environment.
In recent years, the central level of market interest rates has declined, placing significant pressure on asset-liability matching for insurance funds, particularly life insurance. On one hand, the scale of insurance funds continues to grow annually, with a large volume of maturing assets requiring reinvestment. On the other hand, high-quality assets that balance duration, safety, and yield remain scarce. The Hong Kong stock market hosts a range of representative listed companies in sectors such as internet, biomedicine, and new consumption, differing from A-shares in industry structure. Allocating via HK Connect ETFs helps insurance funds further diversify equity investment risks and expand their asset allocation boundaries. Tian Lihui believes that HK Connect ETFs offer a convenient, index-based tool for one-click deployment, combining ease of use with diversification to effectively improve allocation efficiency. Additionally, since they do not consume QDII quotas, this approach breaks through the long-standing quota bottleneck for overseas insurance fund allocations at the institutional level. This arrangement aligns with the launch of the "Southbound Bond Connect" under the Bond Connect framework in 6 month this year, together forming a closed-loop system for cross-border insurance fund allocation.
For the Hong Kong market, the entry of insurance capital is not just about boosting trading volume; more importantly, it improves investor structure by shifting some funds from transactional to allocation-driven. If insurers gradually develop long-term allocation habits, it will strengthen the institutional and long-term nature of the Hong Kong ETF market. However, the actual pace of increased allocation may be cautious.
Industry insiders expect initial allocations to focus on pilot programs and phased positioning, avoiding simple, rapid, large-scale one-way inflows. For regulated insurance capital, HK Stock Connect ETFs are typically classified as FVTPL (Fair Value Through Profit or Loss), meaning fair value fluctuations directly impact current earnings, creating constraints on managing profit and solvency volatility. Zhu Junsheng noted that while policy addresses "whether investment is permitted," FVTPL classification influences "the willingness to invest more and the strategy employed." However, this does not preclude long-term holdings; assets with genuine long-term allocation value can still be held indefinitely. Tian Lihui emphasized that insurance capital prioritizes duration matching and stable returns. As patient capital, its core attributes remain unchanged regardless of accounting classifications. Given the falling interest rate cycle, the relative attractiveness of high-dividend HK stocks continues to rise, suggesting a potential upward shift in allocation intensity.
Supply-side dynamics are equally critical in determining the pace. As of the end of 9, there were 31 Hang Seng Stock Connect ETFs with a total AUM of 3219 billion yuan, all equity-focused. Tian Lihui notes that while this supply volume is sufficient to meet the pilot allocation needs of insurance capital in the short term, a clear structural gap exists in the medium term. Since insurance capital primarily focuses on fixed income and has rigid demand for bond assets, including bond ETFs under the Southbound Trading scope would provide new offshore fixed-income tools, complementing existing bond Southbound products. Additionally, current rules require that stocks eligible for Hang Seng Stock Connect represent at least 60% of the tracked index; appropriately increasing the overseas stock proportion would better align with insurance capital's need for diversified portfolios. Zhu Junsheng also emphasizes that insurance capital requires not only broad-based and sector-specific ETFs but also dividend-focused, low-volatility, quality-factor, and more diverse global asset allocation products. As insurance capital demand gradually unfolds, it will further drive expansion in ETF product supply. Looking ahead, the speed at which insurance capital transitions from pilot to regular allocation will depend on balancing supply-side expansion with accounting constraints.
