New money for Hong Kong ETFs and REITs: insurance funds, MPF and cross-border channels

Context

Hong Kong's ETF market has grown strongly, helped by product innovation in areas such as leveraged and inverse products, digital assets and, more recently, gold. Mainland investors can already buy eligible Hong Kong ETFs through Stock Connect. Yet compared with the size of mainland and global savings, the flows into Hong Kong's listed funds remain modest.

REITs tell a different story. Hong Kong's REIT market, launched in 2005, has been held back by a small number of listings, limited flexibility for existing trusts and high transaction costs for injecting property. Many REITs have traded at large discounts to net asset value in recent years as interest rates rose.

The 2026 Policy Address, delivered on 16 September, takes aim at both markets through what might be called plumbing: changing who can invest and on what terms.

What changed

Mainland insurance funds. The address says the government will promote investment by mainland insurance funds in Hong Kong ETFs through mutual market access, expand the scope of eligible ETF products and promote cross-listing of ETFs between HKEX and Southeast Asian exchanges. Mainland insurers manage very large, long-term portfolios. Even a small allocation through a regulated channel could be significant for Hong Kong's ETF market.

MPF. The total investment limit on eligible index-tracking ETFs by MPF funds is to be lifted, so that MPF funds can make greater use of local ETFs. Earlier, in July, the Mandatory Provident Fund Schemes Authority optimised its approval mechanism for gold ETFs, increasing MPF funds' flexibility to invest in them, and the government said it would introduce an amendment bill in the fourth quarter to enhance MPF investment rules, including relaxing restrictions on fund structure.

REITs. The government will introduce a bill this year to enable the privatisation or restructuring of REITs, and another bill in the first half of 2027 to provide a stamp duty waiver for transferring non-residential properties into REITs seeking to list. The SFC will streamline procedures to attract overseas REITs to dual-list in Hong Kong and revise its codes in the fourth quarter to promote fund product innovation. The government will continue to seek the early inclusion of REITs in mutual market access.

Cross-border recognition. These measures follow the 23 July memorandum between the SFC and the Securities Commission Malaysia, which expanded mutual recognition of funds to non-Islamic ETFs, leveraged and inverse products and REITs.

Why it matters

ETFs and REITs are where market structure meets everyday investors. Their success depends on liquidity, and liquidity depends on reliable, long-term buyers. Insurance companies and pension funds are exactly that kind of buyer. If mainland insurers and the MPF system allocate steadily to Hong Kong-listed ETFs, spreads should tighten, assets under management should grow, and issuers will have more reason to launch products in Hong Kong.

For REITs, privatisation rules address a practical problem. When a REIT trades far below its asset value, a sponsor or investor may want to take it private, but the current framework makes that difficult. Clear rules give both minority unitholders and sponsors a path forward. The stamp duty waiver on property injections could, in turn, make new listings more economic, especially for owners of offices, logistics facilities, data centres and other non-residential assets.

Implications for investors, families and businesses

For individual investors, more liquidity in Hong Kong ETFs generally means lower trading costs and more products to choose from. It is still worth checking each ETF's structure, tracking difference and fees.

For MPF members, the changes may lead to more low-cost, index-tracking options in MPF funds over time, though this depends on how trustees respond.

For families holding property, the REIT stamp duty waiver may make a REIT listing worth considering as an exit or recycling route for non-residential portfolios, once the legislation is in place.

For REIT unitholders, privatisation rules could narrow discounts by making take-private offers more feasible, but they also require careful attention to minority protections in any proposal.

For asset managers, the expansion of eligible ETFs for insurance funds and cross-listings with Southeast Asia open new distribution channels.

Questions to consider

• How liquid are the Hong Kong ETFs we hold, and could new flows change that?
• Are our MPF choices making use of low-cost, index-tracking options?
• Do we own non-residential property that could, in future, be suitable for a REIT?
• As REIT investors, how would we evaluate a privatisation offer?
• Which Hong Kong products could benefit most from mainland insurance and Southeast Asian distribution?

Closing

None of these measures is dramatic on its own. Together they point to a deliberate strategy: bring patient, institutional money into Hong Kong's listed fund products, and remove frictions that have held back REITs. If the legislation follows on schedule, the effect over the next few years could be a deeper, more liquid market for products that matter to ordinary investors and families.