Recent developments in hot sectors ranging from artificial intelligence to biotechnology have prompted mainland investors to channel record amounts of capital into domestically-listed exchange-traded funds (ETFs) that track Hong Kong stocks. Analysts suggest this trend is likely to continue.
According to Bloomberg data, onshore-listed Hong Kong stock ETFs have attracted over $26 billion in inflows year-to-date, with investor enthusiasm remaining elevated since June. Mainland retail investors are drawn to Hong Kong's stellar market performance, convenience, and numerous new product options available.
Shihao Li, China strategy research analyst at CLSA, noted: "Many young mainland Chinese investors purchase ETFs through applications like Alipay, and they may not even need to open securities accounts. This makes it much easier for them to achieve their wealth management goals."
The Hang Seng Index has surged 30% this year, more than double the gains of the CSI 300 Index. Key drivers include stocks from technology companies such as AI leader Alibaba (09988), as well as smartphone and electric vehicle manufacturer Xiaomi (01810).
Among major themes, a rising wave of young consumerism has tripled the stock price of Pop Mart (09992), making it the best performer in the Hang Seng Index. Several other companies in the top ten rankings highlight China's growing importance in the pharmaceutical sector.
Individual investors tend to favor sector-specific ETFs to facilitate trading in and out of these positions, while institutional investors are the primary buyers of broad-based index tracking products. This year's top fund inflows have gone to onshore funds including the Hong Kong Stock Connect Internet ETF (159792) and Hong Kong Stock Connect Innovative Drug ETF (159570).
Ding Wenjie, global capital investment strategist at China Asset Management, stated: "The strong growth momentum is driven by Hong Kong market's unique industry and thematic stories. ETF issuers' rapid launch of specialized products targeting market segments has also greatly expanded participation channels for mainland retail investors seeking more differentiated investment opportunities."
Seventeen new Hong Kong stock ETFs have been launched on the mainland this year, with another 16 related applications currently submitted to securities regulators. According to Bloomberg analysts Rebecca Sin and Eric Balchunas, while Hong Kong equity funds represent only 10% of assets in the mainland ETF market, they have captured over 50% of total fund inflows in 2024.
They wrote in a report: "Mainland investors may increasingly channel funds toward Hong Kong." The city offers attractive higher investment returns. Moreover, since investing through cross-border trading channels requires retail investors to maintain minimum account balances of approximately $70,000, onshore-listed ETFs represent "a more convenient option."