Stock Connect ETF Expansion: Mainland Capital Accelerates Southbound, New Opportunities for Hong Kong Stock Investment

Stock Connect ETF Expansion: Mainland Capital Accelerates Southbound

On July 25, 2026, Hong Kong Exchange announced a new round of Stock Connect ETF list adjustments, adding 8 ETFs including HS Tech ESG Select ETF and Greater Bay Area Innovation ETF. This is the 7th expansion since ETFs were included in Stock Connect in 2022. After this expansion, the total number of ETFs included reaches 65, covering tech, finance, ESG, and other sectors, with total assets over HKD 300 billion. HKEX CEO Bonnie Chan stated that the ETF connectivity mechanism is mature and will further optimize trading and settlement processes to attract more mainland investors.

Four Core Advantages of HK Stocks: Why Allocate?

1. High Internationalization, Attracting Global Capital

As an international financial center, HK stocks gather global institutional investors. According to HKEX data, foreign capital accounts for about 40% of HK stock trading in H1 2026, mainly from European and US institutions. This international structure makes HK stock pricing more rational and has stronger correlation with global markets, suitable as a bridgehead for global asset allocation.

2. Low Valuation and High Dividend Yield

As of July 26, 2026, the Hang Seng Index P/E ratio was only 9.5x, at a historical low, while the Hang Seng High Dividend Index dividend yield was 4.8%, significantly higher than A-shares (Shanghai Composite 2.2%) and US stocks (S&P 500 1.5%). Low valuation plus high dividend yield makes HK stocks ideal for investors seeking safety margin and stable cash flow.

3. Rich Variety, Strong Appeal of Unique Targets

HK stocks offer many scarce targets unavailable in A-shares, such as Tencent, Meituan, Xiaomi and other new economy giants, as well as the world's largest biotech companies, REITs, ETFs. Especially after the Stock Connect ETF expansion, mainland investors can directly invest in cross-border ETFs, commodity ETFs via Stock Connect without opening overseas accounts.

4. Flexible Trading Rules: T+0 and No Price Limits

HK stocks implement T+0 trading, funds can be traded multiple times on the same day, and there are no price limits. This flexible mechanism allows short-term traders to quickly capture market volatility, but also requires stronger risk awareness and discipline.

HK Stock Investment Strategy for H2 2026: Focus on Four Directions

Based on current market conditions and latest policies, H2 HK stock investment can focus on the following directions:

• Tech Leaders: Hang Seng Tech Index constituents' valuations have fallen to reasonable ranges, AI, cloud computing and other subdivisions have high earnings growth certainty. Recommend Tencent, Alibaba, Meituan.
• High Dividend Strategy: In the interest rate down cycle, high-dividend state-owned enterprises like China Mobile and CNOOC have defensive value, with continuous capital inflows after Stock Connect inclusion.
• ESG and Innovation Themed ETFs: The newly added ESG ETFs and Greater Bay Area Innovation ETFs align with national strategy, have low fees, and are suitable for regular investment.
• Biotech Sector: HK 18A pre-revenue biotech companies, after two years of adjustment, some are nearing product commercialization and have high elasticity.

Risk Warnings and Operation Tips

Although HK stocks have significant advantages, investors should note the following risks: exchange rate fluctuations (HKD is pegged to USD, but RMB fluctuations affect actual returns), liquidity divergence (some small-cap stocks have daily turnover of only millions HKD), trading costs (stamp duty 0.1%, higher than A-shares). It is recommended that novice investors enter via Stock Connect ETFs, familiarize themselves with rules, then gradually participate in individual stocks. For account opening, mainland investors can trade directly through brokerages with Stock Connect permission (e.g., CICC, CITIC, HTSC) without additional Hong Kong bank accounts.

Overall, the Stock Connect ETF expansion opens a more convenient investment window for mainland investors. Combined with HK stocks' low valuation, high dividend, and international characteristics, now may be a good time to allocate HK stocks. But remember: every market has risks; diversification and long-term holding are the keys to success.