CMSC: Insurance funds officially allowed to invest in Stock Connect ETFs, opening a new channel for cross-border allocation.

CMSC released a research report stating that global asset allocation is a bottleneck that the insurance industry's fund utilization urgently needs to break through at present. It is expected that in the initial stage of Southbound Stock Connect ETF implementation, insurance funds will mainly adopt pilot allocations and phased position building, with emphasis on optimizing asset portfolios. In particular, Southbound Stock Connect ETFs in global themes, dividend, and technology directions are relatively attractive. For public fund managers, customized ETF product cooperation and outsourced management needs from insurance institutions are expected to become new growth points. Maintain the industry recommendation rating. CMSC's main views are as follows: Event Recently, the General Office of the National Financial Regulatory Administration issued a letter to local financial regulatory bureaus, insurance group (holding) companies, insurance companies, and insurance asset management companies clarifying the regulatory scope for insurance funds investing in Southbound Stock Connect ETFs. It pointed out that insurance institutions permitted by regulatory rules to invest in Southbound Stock Connect stocks may invest in Southbound Stock Connect ETFs, to be implemented by reference to the relevant regulatory rules for insurance funds investing in Southbound Stock Connect stocks. This regulatory scope took effect on September 20. On September 21, the turnover of multiple Southbound Stock Connect ETFs increased significantly compared with before, and the market speculated that this may have been caused by purchases by insurance funds. From the first statement of support to the implementation of the regulatory scope, only about one month passed. The policy pace for insurance funds investing in Southbound Stock Connect ETFs was relatively tight, and the deeper background remains the pressure of asset scarcity. Insurance funds have participated in Southbound Stock Connect investment for ten years, but previously could not directly invest in Southbound Stock Connect ETFs. On August 18, 2026, the National Financial Regulatory Administration explicitly stated for the first time that it supported mainland insurance institutions in investing through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect in HKEX-listed funds (ETFs). On September 23, Julia Leung, Chief Executive Officer of the Hong Kong Securities and Futures Commission, confirmed in a speech that mainland insurance funds had officially entered ETF Connect, with the overall arrangement noticeably faster than the opening pace of similar systems 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. The official opening of Southbound Stock Connect ETFs, combined with the earlier implementation of Bond Connect Southbound trading, jointly forms an institutional closed loop for cross-border allocation by insurance funds, which is conducive to further improving the efficiency of insurance asset allocation. Insurance funds investing in Southbound Stock Connect ETFs do not need to consume QDII quotas, and can use ETFs as standardized tools for global asset allocation. On the one hand, the advantage of Southbound Stock Connect ETFs is that they do not occupy QDII quotas, and allocation authority is directly linked to existing Southbound 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 was USD 42.003 billion. 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 Southbound Stock Connect ETFs provides insurance companies with a normalized alternative channel not constrained by quotas, helping to marginally disperse QDII quota pressure. On the other hand, some southbound ETFs can use the Hong Kong market as a vehicle to allocate to overseas high-quality assets such as U.S. and Korean stocks, providing a low-cost tool for one-basket investment. According to current Stock Connect standards, the weight of Stock Exchange of Hong Kong-listed stocks and Southbound Stock Connect eligible stocks in the index tracked by southbound ETFs must each be no less than 60%, while the remaining portion may be allocated to assets in overseas markets such as the United States and South Korea. This helps investors extend their allocation horizon globally while investing in the Hong Kong market, allowing more flexible cross-market and cross-industry allocation. In addition, Hong Kong stocks generally trade at a discount and have no price limit constraints, providing a certain margin of safety and valuation advantage. Southbound Stock Connect ETFs are temporarily exempt from stamp duty, which can also reduce transaction-related costs. Together, these factors constitute the attractiveness of Southbound Stock Connect ETFs for insurance fund allocation. At this stage, the actual capacity of Southbound Stock Connect ETFs to absorb insurance fund allocation is still relatively limited, and they are accompanied by risks such as exchange rates, liquidity, relatively high capital occupation, and profit volatility. Since their launch in 2022, ETF Connect has undergone several expansions. As of August 2026, there were 31 Hong Kong ETFs eligible for southbound trading under Stock Connect, covering multiple strategies such as broad-based, technology, dividend, and ESG. Among them, 7 were "60/40" cross-market ETFs, covering areas such as U.S. and Korean technology industries, artificial intelligence, and high-dividend companies. At present, the total market value of Southbound Stock Connect ETFs is less than HKD 400 billion, and market size and trading are mainly concentrated in a few leading products. Concentrated large-scale purchases may bring short-term price impact and premium/discount risks, increasing entry and exit costs. Additional exchange rate and overseas asset price risks, as well as low liquidity, all place higher demands on insurance companies' capital strength and solvency levels. In addition, under the new accounting standards, Southbound Stock Connect ETFs are recorded in accounting entries as FVTPL (financial assets measured at fair value through profit or loss), and fair value fluctuations directly enter current profit or loss, which may also affect some insurers' willingness to allocate. Risk warnings: economic growth below expectations; tightening regulation; declining product attractiveness; capital market volatility; declining interest rates; increased frequency of major disasters.