Source: International Finance News
A new channel is added for the routine allocation of overseas assets by insurance funds.
On 9 29, industry sources reported that several insurance institutions recently received a letter from the General Office of the National Financial Regulatory Administration titled "Letter on Clarifying Regulatory Guidelines for Insurance Funds Investing in Stock Connect ETFs" (hereinafter referred to as the "Regulatory Guidelines Letter"). The letter clarifies that insurance institutions eligible to invest in Stock Connect stocks under regulatory rules may also invest in Stock Connect ETFs, subject to the same regulatory requirements governing insurance funds' investments in Stock Connect stocks.
The regulatory guidance letter states that this measure aims to optimize the asset allocation structure of insurance companies and standardize insurance funds' investment in HK Stock Connect ETFs. This regulatory guidance will take effect starting from 2026/9/20.
Industry observers note that insurers previously invested in Hong Kong ETFs mainly through QDII (Qualified Domestic Institutional Investors). The Stock Connect channel does not consume QDII quotas, allowing for more flexible allocation sizes. Additionally, Stock Connect ETFs include cross-border investment products and may become a new breakthrough for mainland insurers expanding their overseas investments.
Enhance your cross-border investment toolkit
HK Stock Connect ETFs are exchange-traded funds listed on the Hong Kong Stock Exchange and included in the Mainland-Hong Kong Stock Market Trading Connectivity Mechanism. Investing in these ETFs does not require QDII quota allocation.
According to reporters' statistics, as of 9/29, a total of 31 ETFs included in the Stock Connect scheme are available—all equity funds covering broad-based indices, technology sectors, high-dividend strategies, and cross-market approaches.
In fact, insurers have been investing in the Stock Connect market for over a decade. In 2016 month 9, the former China Banking and Insurance Regulatory Commission issued the "Regulatory Guidelines on Insurers Participating in the Shanghai-Hong Kong Stock Connect Pilot Program," marking the launch of the pilot program for insurers to participate in the Stock Connect and initiating their first step into Hong Kong stock investments.
In 2017, the former China Banking and Insurance Regulatory Commission issued the "Regulatory Guidelines for Insurance Funds Participating in the Stock Connect Pilot Program," which expanded the scope of investments available to insurance funds to include the Stock Connect.
In 2022, ETFs were officially included in the Stock Connect mechanism between mainland China and Hong Kong. However, at that time, insurance funds were not yet permitted to directly invest in Stock Connect ETFs.
Since 2026, the implementation of relevant policies has accelerated significantly. On 8 month 18 day, Xiao Yuanqi, member of the Party Leadership Group and Vice Minister of the National Financial Regulatory Administration (NFRA), met with a delegation led by Hui Chun-yu, Secretary for Financial Services and the Treasury of the Hong Kong Special Administrative Region Government. Xiao Yuanqi stated that the NFRA supports mainland insurance funds participating in the mutual market access between mainland China and Hong Kong, and supports mainland insurance institutions investing in exchange-traded funds (ETFs) listed on the Hong Kong Stock Exchange through the Stock Connect programs.
On 9 23, Hong Kong Securities and Futures Commission CEO Leung Fung-yee stated that with the support of China's National Financial Regulatory Administration, mainland insurance funds are now permitted to invest in ETFs listed in Hong Kong. On 9 21, these funds officially launched via "ETF Connect."
Tian Lihui, a finance professor at Nankai University, told reporters that for insurance capital, the core advantages of Hang Seng Stock Connect ETFs include: no QDII quota consumption; allocation rights tied directly to Stock Connect eligibility; diversification and transparency; T+0 trading; exemption from stamp duty; and accounting measurement rules consistent with Stock Connect stocks, requiring no adjustment to existing frameworks.
"This policy will further expand the cross-border investment toolkit for insurance capital, enhance asset allocation flexibility, and enable insurers to efficiently deploy into core Hong Kong assets via ETFs in a single click, effectively mitigating risks from volatility in the A-share market alone," said Tian Lihui.
Zhu Junseng, a postdoctoral fellow in Applied Economics at Peking University and professor, also told reporters that while insurance fund assets continue to grow, yields on traditional fixed-income assets are under pressure. Insurance companies need more diversified equity investment tools. Compared with direct investments in individual Hong Kong stocks, ETFs offer diversification, standardization, and high transparency, making them better suited for institutional investors.
In his view, this policy does more than simply add a new investment option; it advances cross-border equity investments by insurance funds from individual stock allocation to portfolio allocation.
Li Jian, Chief Analyst of Non-Banking Finance at Huatai Securities, noted that the current low-interest-rate environment has compressed interest income. To maintain a certain level of cash yield (from interest, dividends, and rent), mainland insurers are increasingly allocating to high-dividend stocks. With limited supply of A-share dividend stocks, the H-share market has become a key source of such yields. If the Hang Seng Stock Connect High Dividend ETF can leverage advantages from both Hong Kong and overseas markets while maintaining stable dividend payouts, it would be highly attractive to mainland insurers.
Dual-track parallelism with complementary empowerment
Data released by the National Financial Regulatory Administration shows that as of the end of 6 this year, the total assets under management by insurance companies surpassed 1 trillion yuan for the first time, reaching a record high of 40.82 trillion yuan. However, the prolonged low-interest-rate environment has placed significant pressure on asset allocation for insurance funds. Expanding investment tools and broadening allocation channels have become an industry consensus.
According to a survey by the China Banking and Insurance Asset Management Association, as of the end of 2025, the total scale of overseas investments by insurance funds reached 22462 billion yuan, accounting for 5.4% of the industry's total assets. This leaves nearly 10 percentage points of room to reach the regulatory cap of 15%.
In 6, the insurance sector officially began participating in the "Southbound Connect" of Bond Connect, providing a new channel for overseas expansion. Meanwhile, the State Administration of Foreign Exchange expanded the QDII quota twice in 3 and 8. Insurance companies received an additional QDII allocation of 26.8 billion USD covering 22 institutions, raising the total QDII quota for the industry to 420.03 billion USD.
Under a series of supportive policies, channels for overseas investment by insurance funds continue to expand. Tian Lihui notes that Hong Kong Stock Connect ETFs and QDIIs serve different purposes, together forming a cross-border allocation framework: QDIIs can invest in markets outside the Stock Connect list, offering broader scope; Hong Kong Stock Connect ETFs offer higher trading efficiency but are subject to a constraint requiring at least 60% weight in stocks eligible for the Stock Connect program. While Hong Kong Stock Connect ETFs will marginally reduce insurance funds' reliance on QDII quotas, the relaxation of QDII quota management depends on the pace of capital account liberalization.
Zhu Junsheng also noted that while the Stock Connect ETF does not consume QDII quota, its investment scope and trading rules are subject to the Stock Connect framework, making it a non-unrestricted offshore channel. In the future, these two mechanisms are more likely to coexist with differentiated roles: Stock Connect will primarily serve standardized allocation via the Hong Kong market, whereas QDII will handle broader global asset allocation.
Beyond opportunities, institutional investors deploying into Hang Seng Stock Connect ETFs must also address potential risks. Tian Lihui warns that under the FVTPL (fair value through profit or loss) measurement, fair value fluctuations are directly recognized in the income statement;
Second, fluctuations in the exchange rate between the Hong Kong dollar and the Chinese yuan may affect returns.
Third, liquidity constraints during periods when the mainland market is open but the Hong Kong market is closed.
Driven by risk considerations, Tian Lihui believes insurance companies will maintain a cautious overall deployment pace, focusing on pilot programs and phased position building. In the long run, as the appeal of high dividends in the Hong Kong stock market grows, insurance capital allocation is expected to gradually increase, though not aggressively.
The deeper value of this policy opening lies in empowering the mutual connectivity between the two capital markets. Zhu Junsheng stated that mainland insurers entering the Hang Seng ETF market has added a crucial group of long-term institutional investors to Hong Kong. Its significance goes beyond increasing trading volume; more importantly, it improves investor structure and drives a shift from transactional to allocation-driven capital. As insurers gradually develop long-term allocation habits, it will help enhance the institutionalization and long-term capital attributes of the Hong Kong ETF market.
"Of course, given the limited supply of current products and the profit volatility constraints from FVTPL, large-scale capital inflows are unlikely in the short term. However, in the long run, this undoubtedly opens a regulatory channel for incremental long-term funds to the Hong Kong market," said Zhu Junsheng.
