CMSC has released a research report noting that global asset allocation is a bottleneck the insurance industry urgently needs to break through in terms of capital deployment, and it expects that in the initial phase of Stock Connect ETF implementation, insurance funds will mainly adopt pilot allocations and phased position building, with the focus on optimizing asset portfolios. Stock Connect ETFs themed around global topics, dividends, and technology are seen as relatively more attractive. For public fund managers, customized ETF product cooperation and outsourced management demand from insurance institutions are expected to become new growth drivers. The industry rating remains recommended. CMSC's main views are as follows.
Event backdrop
Recently, the General Office of the National Financial Regulatory Administration issued a letter to local financial regulatory bureaus, insurance groups (holding companies), insurance companies, and insurance asset management companies clarifying the regulatory stance on insurance funds investing in Stock Connect ETFs. The letter stated that insurance institutions permitted under regulatory rules to invest in Stock Connect stocks may invest in Stock Connect ETFs, to be governed by the relevant regulatory provisions for insurance funds investing in Stock Connect stocks, with this regulatory stance taking effect from September 20. On September 21, the turnover of several Stock Connect ETFs surged significantly compared with earlier levels, and the market speculated this may have been driven by purchases from insurance funds. Only about one month passed from the first expression of intent to the formal implementation of the stance, indicating a fairly tight policy timeline for insurance fund investment in Stock Connect ETFs, with the deeper backdrop remaining the pressure of asset scarcity.
Insurance funds and Stock Connect
Insurance funds have participated in Stock Connect investments for a decade, but previously could not directly invest in Stock Connect ETFs. On August 18, 2026, the NFRA explicitly expressed support for mainland insurance institutions to invest in Hong Kong Exchange-traded funds (ETFs) through the Shanghai-Hong Kong-Shenzhen Stock Connect for the first time. On September 23, Julia Leung, Chief Executive Officer of the Hong Kong Securities and Futures Commission, confirmed in a speech that mainland insurance funds have officially entered ETF Connect, with the overall arrangement clearly faster than the pace of similar institutional openings in the past. The bank believes that under the low interest rate environment in recent years, insurance institutions have continued to face a shortage of suitable assets, and the formal liberalization of Stock Connect ETFs, combined with the earlier implementation of Bond Connect Southbound trading, together form an institutional closed loop for cross-border allocation by insurance funds, which is conducive to further improving the efficiency of insurance asset allocation.
No QDII quota required
Insurance funds investing in Stock Connect ETFs do not need to consume QDII quotas, and can use ETFs as standardized tools for global asset allocation. On one hand, the advantage of Stock Connect ETFs lies in not occupying QDII quotas, as allocation authority is directly tied to existing Stock Connect eligibility without additional approval. In the past, insurance funds increasing overseas asset allocation generally faced the constraint of scarce QDII quotas. As of August 2026, the total QDII quota for insurance institutions stood at USD 42.003 billion, and subsequent relaxation depends on the overall pace of capital account opening, but it remains relatively limited compared with the overall scale of insurance funds and the 15% overseas investment cap. The implementation of Stock Connect ETFs provides insurers with a normalized alternative channel free from quota constraints, helping to marginally ease QDII quota pressure. On the other hand, some southbound ETFs can use the Hong Kong market as a vehicle to allocate to quality overseas assets such as US and Korean stocks, providing a low-cost tool for one-stop investment. According to current Stock Connect standards, the weight of SEHK-listed stocks and Stock Connect-eligible stocks in the index tracked by southbound ETFs must each be no less than 60%, while the remainder can be allocated to overseas market assets such as those in the United States and South Korea, helping investors extend their allocation horizons globally while investing in the Hong Kong market and enabling more flexible cross-market and cross-industry allocation. In addition, Hong Kong stocks generally trade at a discount and have no price limit constraints, offering a certain margin of safety and valuation advantage, while Stock Connect ETFs are temporarily exempt from stamp duty, which can also reduce transaction-related costs, together forming the appeal of insurance fund allocation to Stock Connect ETFs.
Current capacity still limited
At this stage, the actual capacity of Stock Connect ETFs to absorb insurance fund allocations remains relatively limited, and is accompanied by risks such as exchange rate fluctuations, liquidity, relatively high capital occupation, and profit volatility. Since the launch of ETF Connect in 2022, it has undergone several expansions. As of August 2026, a total of 31 Hong Kong ETFs met the qualifications for southbound Stock Connect trading, covering multiple strategies such as broad-based, technology, dividend, and ESG, of which 7 are "60/40" cross-market ETFs covering areas such as US and Korean technology industries, artificial intelligence, and high-dividend companies. Currently, the total market value of Stock Connect ETFs is less than HKD 400 billion, and market size and turnover are mainly concentrated in a few leading products. Concentrated large-scale purchases may bring short-term price shocks and premium/discount risks, increasing the cost of building and exiting positions. Additional exchange rate and overseas asset price risks as well as low liquidity all place higher demands on insurers' capital strength and solvency levels. In addition, under the new accounting standards, Stock Connect ETFs are classified in accounting entries as FVTPL (financial assets measured at fair value through profit or loss), and fair value fluctuations directly enter current period profit or loss, which may also affect some insurers' willingness to allocate.
Risk warnings
Economic growth falling short of expectations; tightening regulation; declining product appeal; capital market volatility; declining interest rates; increased frequency of major disasters.