Hong Kong Non-Bank Financial Index Rallies 30% Year-to-Date, ETF Units Surge by 2.4 Billion with Insurance Stocks Leading Allocations

After reaching a new high for 2025 during intraday trading on June 25, the CSI HK-Connect Non-Bank Financial Theme Index slightly retreated, closing at 3795.09 on June 26, with a cumulative gain of over 30% year-to-date. Capital has been rapidly flowing into the non-bank financial sector in Hong Kong. The Hong Kong Non-Bank ETF under GF Fund, the only ETF tracking this sector, uses the CSI HK-Connect Non-Bank Financial Theme Index as its benchmark. According to Wind data, daily trading volume for the ETF reached RMB 764 million, RMB 1.423 billion, and RMB 2.576 billion from June 23 to 25, respectively, showing a notable surge in activity. Although trading volume declined slightly on June 26, it remained above RMB 1.3 billion. Since the beginning of 2025, the ETF’s total shares have increased by nearly 2.4 billion, now exceeding 3 billion. Over the last five trading days, the ETF has gained over 10%.

Insurance stocks form the core of ETF holdings. The CSI HK-Connect Non-Bank Financial Theme Index primarily concentrates on the insurance industry. Among the top ten constituent stocks, companies such as Hong Kong Exchanges and Clearing, AIA, Ping An Insurance, China Life, PICC P&C, PICC Group, China Pacific Insurance, New China Life, China Taiping, and ZhongAn Online represent a combined weight of 82.79%, with nine insurance firms accounting for 65.11%. The GF Fund’s ETF similarly allocates heavily toward eight insurance companies including AIA, Ping An Insurance, China Life, PICC P&C, China Pacific Insurance, PICC Group, New China Life, and China Taiping, with a combined weight of 61.84%.

Since the second quarter, insurance stocks have steadily risen, with dual-listed A+H shares such as Ping An Insurance, China Life, and China Pacific Insurance all registering significant gains. A recent survey by the China Insurance Asset Management Association indicated that the balance of overseas investments by insurance funds stood at USD 76.1 billion (approximately RMB 569.5 billion) in 2024, and 63% of institutions plan to expand their investment in Hong Kong stocks in 2025, primarily via the Stock Connect mechanism.

Despite positive momentum, some experts remain cautious about the long-term outlook. Xiang Songzuo, a renowned economist and Dean of the Greater Bay Area Financial Research Institute, noted that in a low interest rate environment, small and mid-sized insurers face pressure from interest spread losses and must swiftly adjust their asset-liability structures to address emerging challenges. He emphasized that while consumer and pension-related refinancing can help boost consumption and support the elderly care sector, they do not alleviate the problem of interest spread losses. He further stressed that current policies for deploying insurance capital still lack clarity, and their implementation has been suboptimal. The fundamental direction of encouraging insurance capital to act as long-term and patient capital remains correct, but specific policy details need urgent clarification.

Investor enthusiasm toward non-bank financials continues to grow, bolstered by expectations of securities firm mergers and the release of Hong Kong’s stablecoin draft, both of which have elevated attention on the sector. In addition to gains in the Hong Kong market, the A-share non-bank financial sector has also performed strongly. On June 25, Hongye Futures and Guosheng Financial hit the daily limit-up for three consecutive sessions, while stocks such as Xiangcai Securities and TF Securities also rose.

Chen Fu, Chief Non-Bank Analyst at GF Securities, noted that recent policy developments aimed at deepening financial market reforms, expanding high-level financial openness, and nurturing new financial models have created notable growth opportunities for non-bank institutions. He pointed out that the establishment of a Science and Technology Growth Tier supports listings of high-quality, unprofitable innovative enterprises, and institutional enhancements may facilitate an IPO expansion, which would benefit the primary market and institutional capital operations.

Concurrently, under the backdrop of RMB internationalization, the continued opening of capital markets and coordinated efforts to advance high-quality capital account liberalization have further improved foreign access to China's market.

On June 26, the National Financial Regulatory Administration and the People’s Bank of China jointly released the “Implementation Plan for High-Quality Development of Inclusive Finance in the Banking and Insurance Sector,” which aims to build a high-quality, comprehensive inclusive financial system over the next five years. The plan outlines improvements to the inclusive credit system, maintenance of lending capacity, and optimization of credit structures. Regarding insurance, the plan encourages large insurers to align with sustainability principles and prioritize inclusive insurance in areas such as resource allocation, performance evaluation, accounting, and risk management. It also promotes the development of regional specialty agricultural insurance and improvements to pricing and reimbursement mechanisms to offer affordable, high-quality insurance products for rural communities, small and micro enterprises, and targeted groups