(Yicai) Aug. 19 -- Insurance funds from the Chinese mainland will be permitted to invest in Hong Kong-listed exchange-traded funds through the Stock Connect without using their qualified domestic institutional investor quotas, marking another milestone in the financial market connectivity between the mainland and the special administrative region.

The National Financial Regulatory Administration will support mainland insurance institutions in investing in Hong Kong-listed ETFs under the Southbound Stock Connect scheme, Deputy Director-General Xiao Yuanqi said yesterday in a meeting with a Hong Kong delegation led by Christopher Hui, secretary of the SAR's Financial Services and the Treasury Bureau, according to the NFRA website.

Even though insurance capital was eligible to invest in Hong Kong ETFs before, allocation to this type of product was limited by tight QDII quotas.

This policy facilitates mainland insurance firms' diversified asset allocation through Hong Kong, boosts the development of its ETF market, expands its ETF ecosystem, and shows the strong support from the central government for the growth of its capital market and asset management sector, Hong Kong Chief Executive John Lee said, China News Service reported.

An investment executive at a large Chinese mainland insurer told Yicai that his firm will consider allocating capital to Hong Kong ETFs, in line with its investment strategy going forward. "Our company used the Southbound Stock Connect to trade Hong Kong equities, but Hong Kong ETFs were not our investment targets," he noted.

"We thank the NFRA for their continued support, and welcome mainland insurance institutions to use our broad product suite and risk-management tools in optimizing their portfolios," Bonnie Y Chan, chief executive officer of the Hong Kong Exchanges and Clearing, said yesterday.

"Mainland insurance funds diversifying their asset allocation through Hong Kong ETFs will boost the market's vibrancy and depth, supporting the long-term growth of the Stock Connect program and underscoring Hong Kong's role as a superconnector between China and the world,” she added.

Since ETFs were included in the Stock Connect program in 2022, trading volumes across both Northbound and Southbound legs have continued to grow, with active Southbound turnover contributing to the expansion of Hong Kong's ETF market, HKEX noted.

The daily turnover for Southbound and Northbound ETFs averaged HKD5.8 billion (USD739.6 million) and CNY5.1 billion (USD756.3 million), respectively, in the first seven months of the year, up 61 percent and 86 percent from a year earlier, according to data released by HKEX. The average daily turnover of ETFs in Hong Kong rose 22 percent to HKD40.6 billion (USD5.2 billion) in the period.

Editors: Tang Shihua, Futura Costaglione