Hong Kong Expands Cross-Market ETF Push as Mainland Investors Seek Global Diversification

The September 28 listings included products such as the Huatai-PCG HKEX KRX Semiconductor Index ETF, which provides cross-market semiconductor exposure, and the Da Cheng Galaxy HKEX Bursa Malaysia Large Cap ETF, alongside funds focused on artificial intelligence, robotics, global technology and strategic resources. Several of the new products are built around HKEX’s rapidly expanding index franchise. The HKEX KRX Semiconductor Index combines 15 Hong Kong-listed semiconductor companies with 15 constituents from South Korea’s semiconductor market, while the HKEX Bursa Malaysia Large Cap Index brings together 30 large Hong Kong companies and 30 Malaysian companies. Another benchmark, the HKEX Tech & US Tech 100 Index, combines 100 Hong Kong-listed technology companies with 100 major Nasdaq-listed technology companies, including the largest U.S. technology groups.

These structures are closely connected to the rules governing Southbound ETF Connect. Eligible Hong Kong ETFs generally need at least 60% of their benchmark weighting to come from HKEX-listed shares and at least 60% from securities eligible for Southbound Stock Connect. Following a relaxation of the rules in 2024, as much as 40% of an eligible benchmark can therefore consist of securities outside the Hong Kong Connect universe. This has encouraged the development of so-called 60/40 products, which use a substantial Hong Kong component to meet Connect requirements while allocating the remaining portion to international markets. For mainland investors operating under capital controls, these ETFs provide a regulated mechanism for obtaining exposure to overseas themes without directly opening foreign brokerage accounts or moving capital outside approved channels.

The potential investor base became significantly larger in August when China’s National Financial Regulatory Administration allowed mainland insurance funds to invest in Hong Kong ETFs through Southbound Stock Connect. Mainland insurers manage enormous pools of long-duration capital and face constant pressure to generate sufficient investment returns to meet policy liabilities. Access to overseas-linked ETFs creates additional diversification opportunities at a time when domestic bond yields remain comparatively low and Chinese equities have struggled to match the performance of several overseas markets. Brokerage estimates cited around the policy change suggested that even a small allocation by insurers could translate into substantial additional capital flows, although actual demand will depend on product eligibility, liquidity, risk limits and insurers’ individual asset-allocation strategies.

Hong Kong’s ETF market was already expanding rapidly before the latest listings. HKEX reported average daily turnover of about HK$40.6 billion for Hong Kong-listed ETFs during the first seven months of 2026, an increase of roughly 22% from a year earlier. Southbound ETF turnover averaged around HK$5.8 billion a day over the same period, while the number of eligible products has expanded substantially since ETFs were first added to Stock Connect in 2022. The development of proprietary and jointly branded indices with exchanges such as Korea Exchange and Bursa Malaysia therefore represents more than a product-launch strategy. It allows HKEX to capture revenue and trading activity across index licensing, ETF issuance, market making and eventually related derivatives.

The broader significance is that Hong Kong is gradually becoming an international asset-allocation platform specifically adapted to the constraints of mainland Chinese capital. Beijing still maintains controls over unrestricted overseas investment, but policymakers are simultaneously expanding official channels that allow institutions and investors to diversify in a controlled manner. Cross-market ETFs fit that objective particularly well because the underlying exposure can extend beyond Hong Kong while transactions remain inside the established Stock Connect infrastructure. For Hong Kong, the strategy could deepen ETF liquidity and reinforce its position as China’s primary financial gateway. For mainland investors, it creates a growing menu of global exposures covering technology, semiconductors, regional equities and other international themes without requiring a fundamental dismantling of China’s capital-account controls.