HKEX (HKXCY): Southbound ETFs Need Only 60% Hong Kong Stocks

Hong Kong Exchanges and Clearing (HKXCY) told investors on its 2026 interim results call on 19 August 2026 that a Southbound-eligible ETF needs only 60% of its benchmark index in Hong Kong stocks. The remaining 40% can hold Korean and US equities, and the exchange is now building those indices itself [1]. HKEX is the only company to have disclosed this directly.

How the Southbound ETF eligibility rule works

Mainland investors cannot buy Korean or US shares directly, but they can buy Hong Kong-listed products through the Southbound leg of Stock Connect. An ETF is an exchange-listed fund; one unit is a proportional claim on the basket of shares the fund tracks. To reach the Southbound eligible list, an ETF's benchmark index must hold at least 60% in Hong Kong-listed stocks that are themselves Southbound eligible [2].

That threshold has been read as a limit confining the channel to Hong Kong assets, but it says nothing about what the other 40% may hold. That sleeve is now being filled with non-Chinese assets. HKEX and the Korea Exchange jointly built a semiconductor index with 30 constituents, 15 from each market, launched on 31 March 2026; the index page states that its purpose is to support ETFs that qualify for Southbound ETF Connect [3]. HKEX has built a large-cap index on the same 60-40 construction with Bursa Malaysia [1]. Issuers then bring the products: PAAMC HK, a subsidiary of Ping An Insurance (02318.HK), had its two Hong Kong-US equity ETFs added to Southbound Stock Connect on 6 May 2026 [2]. Because the test is a weighting, any issuer that wants to sell offshore assets to mainland money can assemble the same structure.

Turnover, eligible products and the money now allowed in

HKEX disclosed that exchange traded products - ETFs plus leveraged and inverse products - accounted for 17% of headline cash-market average daily turnover in the first half of 2026, against about 5% in 2021 [1]. Southbound ETF turnover rose 59% year on year to roughly HK$780 billion in the first seven months of 2026 [4].

On 18 August 2026 mainland regulators allowed insurance funds to invest in Hong Kong ETFs through Southbound Stock Connect [5]. Insurers could previously reach these products only through the QDII channel, where tight quotas kept the invested scale limited [6]. The buyer pool and the product pool are not the same size: 31 Southbound-eligible ETFs currently carry a combined market capitalization of HK$343.6 billion, while mainland insurance industry assets stood at about RMB 43.8 trillion at the end of June 2026 [4]. Those figures show the channel being used more heavily and more money becoming able to enter it. They say nothing about how much of that product complex actually holds offshore assets.

The toll booth moves from the asset to the wrapper

What decides whether an asset can be sold to mainland money is shifting from the country the asset belongs to toward the venue where it is listed. HKEX holds three positions at once: it builds the index, the product lists on its market, and it charges trading and clearing fees per transaction. ETF issuers are paid on assets under management.

One boundary belongs next to that. More turnover does not convert one-for-one into income: HKEX's net investment income fell 11% year on year in the first half, and 21% excluding a one-off valuation gain [1]. Morningstar recorded Asia-Pacific ETF assets at a record US$2.7 trillion in the second quarter alongside US$63 billion of net outflows over the same period [7]. Two figures are worth following once implementation rules for insurance money are published: whether Southbound ETF turnover keeps rising, and whether the eligible list grows beyond 31 products.

Companies exposed to this change

• Huatai Securities (06886.HK): Holds 41.16% of China Southern Asset Management [8], whose Hong Kong arm CSOP is one of the main manufacturers of products on the Southbound list and also issues the Hong Kong leveraged products linked to Samsung Electronics and SK hynix. The widened buyer pool applies to exactly this kind of product, though Huatai has not disclosed any operating impact from it.
• CITIC Securities (06030.HK): Holds 62.2% of China Asset Management [9], whose Hong Kong arm also has products on the Southbound list and faces the same insurance-funds rule. It does not currently have a 60-40 offshore-sleeve product, so it is exposed only to the buyer-pool half of the change.

Sources

[1] Drillr · Hong Kong Exchanges and Clearing · 2026-08-19 · 2026 Interim Results earnings call

"What Bonnie mentioned with regards to the 60-40 ETFs, which is more tailored to the Southbound investments, I think you would have seen the development on our index side, where we have partnered up with KRX on the development of the semiconductor 60-40 index, where 60% is Hong Kong stocks and then 40% is the Korean stocks, focusing on the semiconductor theme. Similarly, we've partnered up with Bursa Malaysia, which we have done a 60-40 on the overall large cap theme. and various other 60-40 indices. So these are the ones that will drive growth for Southbound investments, not only for retail, but now also with yesterday's announcement where down the road, there will be more specific details in terms of the implementation. We will expect that insurance company will also through the Southbound Connect to invest into these ETFs."

[2] PAAMC HK announcement via Yahoo Finance · Inclusion of its two HK-US equity ETFs in Southbound Stock Connect · 2026-05-06 · company announcement · https://finance.yahoo.com/markets/stocks/articles/paamc-hk-announced-inclusion-two-102900052.html

[3] HKEX Index Services · HKEX KRX Semiconductor Index · 2026-03-31 · index page · https://www.hkex.com.hk/Services/Market-Data-Services/Index-Services/KRX-Semiconductor?sc_lang=en

[4] Asia Asset Management · NFRA greenlights Mainland insurers to invest in Hong Kong ETFs · 2026-08-19 · news report · https://www.asiaasset.com/exchange-traded-funds/china-to-allow-local-insurers-to-invest-in-hong-kong-etfs/

[5] Hong Kong SAR Government news release · Govt welcomes country's support · 2026-08-18 · government announcement · https://www.news.gov.hk/eng/2026/08/20260818/20260818_171942_115.html?type=ticker

[6] BigGo Finance · Chinese insurers cleared to buy Hong Kong ETFs via Stock Connect · 2026-08-19 · news report · https://finance.biggo.com/news/4d18c940-b09b-422e-bebf-2dc45f3012a2

[7] AAStocks, reporting Morningstar · Asia-Pacific ETF assets and net outflows · 2026-08-20 · news report · https://www.aastocks.com/tc/stocks/news/aafn-con/NOW.1539478/latest-news/AAFN

[8] Wikipedia · China Southern Asset Management · 2026-08-21 · company reference · https://en.wikipedia.org/wiki/China_Southern_Asset_Management

[9] Wikipedia · China Asset Management · 2026-08-21 · company reference · https://en.wikipedia.org/wiki/China_Asset_Management

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