QDII pressure set to ease as Chinese insurers join Stock Connect

Chinese insurance firms have been given the green light to invest in Hong Kong equities via the Shanghai-Hong Kong Connect, in a move aimed at helping them boost investment returns and portfolio diversification. It is likely to free up overseas investment quota under the qualified domestic institutional investor (QDII) scheme.  

Mainland insurers have been allowed to buy Hong Kong-listed shares via the trading link in recent days, said the China Insurance Regulatory Commission (CIRC) in a statement yesterday evening. The watchdog did not give a date for when the move took effect or publish more details.　

The CIRC said insurance companies must have internal equity investment capabilities or would need to use external managers to invest via the Connect. 

Insurers’ asset management arms are also allowed to manufacture products that buy Hong Kong stocks via the trading link.

This comes after Chinese mutual fund houses received permission to buy Hong Kong-listed shares through the Connect in March last year, as reported.

With insurance firms now able to use the link, more QDII quota may be freed up, said Stephen Baron, deputy director of strategic solutions at Shanghai-based consultancy Z-Ben Advisors.

Mainland insurers could already buy Hong Kong stocks via their overseas investment platforms, or through the QDII scheme. But China’s foreign exchange regulator had suspended new approvals for fresh quota since March 2015, forcing insurers to think more strategically about how to obtain overseas exposure. Forty mainland insurers hold a total of Rmb30.9 billion ($4.6 billion) in QDII quota.

Chinese investors have increased their use of the Connect to buy Hong Kong stocks, particularly this year, reflecting their rising appetite for overseas exposure and interest in high-dividend-yielding stocks. Mainland investors have poured Rmb241 billion into Hong Kong equities via the link since it launched in November 2014.

There had been a quota cap of Rmb250 billion, but it was abolished by the China Securities Regulatory Commission in mid-August for both northbound and southbound legs of the Shanghai link and of the upcoming Shenzhen Connect.