With regulations continuing to tighten, where will the 200 billion yuan in cross-border investment demand go?

According to CITIC Securities' estimates, the affected account assets amount to approximately HK$200-250 billion. Against this backdrop, where will cross-border investment demand go? For domestic investors, the future will require legal channels such as the Stock Connect, Qualified Domestic Institutional Investor (QDII), and Cross-border Wealth Management Connect to conduct overseas investments.

It is worth noting that the strong demand for cross-border investment has already had a chain reaction in related investment products.

According to statistics from Wind, as of June 2nd, over 60% of QDII funds in the market had implemented purchase restrictions or suspended subscriptions. Several cross-border listed funds issued premium risk warnings. The premium rates of the Huatai-PineBridge China-Korea Semiconductor ETF and the Invesco Nasdaq Technology ETF were both around 20%, forcing them to suspend trading consecutively to warn of risks. Furthermore, to address the difficulties in checking QDII quotas and the lack of transparency, several fund distribution platforms launched inquiry services. On June 2nd, several distribution channels, including Tencent Wealth Management, JD Finance, and China Merchants Bank, launched QDII quota inquiry tools to facilitate investors' real-time tracking of changes in overseas fund subscription quotas. QDII funds are a major channel for individuals to allocate overseas assets and a major force in receiving repatriated funds. However, in the QDII (Qualified Domestic Institutional Investor) sector, investors have long faced two major challenges: firstly, due to foreign exchange quota controls, products frequently suspend subscriptions, leading to persistently high premiums for popular funds; secondly, the complexity and diversification of information in overseas markets make it difficult for ordinary investors to select high-quality QDII funds. According to Wind data compiled by Caijing, among the QDII funds still available for subscription, 36 funds have achieved returns exceeding 50% this year, but due to QDII quota limitations, all are currently suspending large-amount subscriptions, with the lowest daily subscription limit as low as 10 yuan. Looking at the geographical distribution of these fund holdings, the proportion of US stock holdings varies widely, ranging from as low as 30% to as high as 80%. Some funds hold a relatively high proportion of A-shares, including several products such as Tianhong Global High-End Manufacturing and E Fund Global Growth, where A-share holdings exceed 30%. Some products also diversify their portfolios with Hong Kong stocks, Taiwan stocks, and South Korean stocks. "I thought I bought a cross-border product, but it's still A-shares." Recently, many investors have complained on Xiaohongshu about the low purity of some QDII funds in US stocks. Large-scale subscriptions for popular products are now severely restricted, further amplifying the premium in the secondary market. Wind data shows that as of June 2, 18 QDII funds had a premium rate exceeding 9%, tracking stocks including Nasdaq, crude oil, Hong Kong and US internet, and semiconductors.

Among them, the QDII fund with the highest return this year is the China-Korea Semiconductor ETF Huatai-PineBridge, with a return of 95% since the beginning of the year and an on-exchange premium of about 20%.

The popularity of the China-Korea Semiconductor ETF Huatai-PineBridge is closely related to two factors: first, the explosive growth of the AI industry cycle; and second, the scarcity of the product. This fund is the only ETF in the A-share market that directly invests in the Korean market, tracking the China-Korea Semiconductor Index of the China-Korea Stock Exchange, encompassing core semiconductor companies from both countries. Its top three holdings are Samsung Electronics, SK Hynix, and Cambricon. Among them, Samsung Electronics and SK Hynix together account for nearly 35% of the fund's net assets. Compared to the pain points of QDII funds, such as limited subscriptions and high on-exchange premiums, the Hong Kong Stock Connect has become the preferred path for cross-border investment due to its institutional advantages. As the most direct and mature channel for meeting Hong Kong stock allocation needs, the Hong Kong Stock Connect covers more than 700 stocks, can be settled in RMB, does not occupy foreign exchange quotas, and does not have the high on-exchange premium problem common to QDII funds. Currently, individual investors need to meet two hard thresholds to open a Hong Kong Stock Connect account: the average daily securities assets in the securities account must be no less than RMB 500,000 in the 20 trading days prior to opening an account, and they must pass the Hong Kong stock market investor suitability knowledge assessment. The Stock Connect program eliminates the need for cumbersome procedures such as opening overseas accounts and obtaining foreign exchange approvals. Once activated, investors can directly trade Hong Kong stocks using their existing A-share accounts. Furthermore, the Stock Connect system also offers a dedicated ETF investment channel, the Southbound ETF Connect, providing investors with more flexible options for allocating overseas assets. According to the Hong Kong Stock Exchange, trading volume of related Stock Connect ETFs has accelerated in recent years, with an average daily turnover of HK$3.9 billion in 2025, a 61.7% increase year-on-year. The scope of eligible products for the Southbound ETF Connect has been continuously expanding in the past two years. In November 2025, the Southbound ETF Connect expanded beyond Hong Kong stocks to include ETFs investing in US stocks, increasing the number of eligible products from 17 to 23. From May 6, 2026, eight Hong Kong-listed ETFs were added to the Southbound list, bringing the total number of eligible products to 31, further extending the scope of eligible assets to markets such as South Korea, Japan, and Australia. One of the highlights of this expansion is the CSOP FTSE Hong Kong Korea Technology+ Index ETF, which is also the ETF with the largest inflow of funds through the Southbound Connect program in the past month. As the only ETF covering Korean technology stocks through the Hong Kong Stock Connect, the CSOP Hong Kong Korea Technology ETF allocates approximately 65% to Hong Kong technology stocks and approximately 35% to core Korean technology assets, with significant holdings in global memory chip leaders such as Samsung Electronics and SK Hynix. The fund's portfolio also includes Hong Kong technology leaders such as SMIC, Alibaba, and Xiaomi Group.

From a market performance perspective, the South Korean KOSPI index has accumulated a gain of over 108% this year, and Goldman Sachs recently raised its 12-month target for the KOSPI from 9000 points to 12000 points. The Southern Hong Kong-Korea Technology ETF has seen a year-to-date gain of 41.27%, ranking first among all Hong Kong Stock Connect ETFs.

Besides the Southern Hong Kong-Korea Technology ETF, the newly added cross-market funds in this round are also worth noting. The E Fund High Dividend ETF is currently the only high-dividend ETF among Hong Kong Stock Connect ETFs that spans three markets. 65% of its core holdings are allocated to blue-chip assets in the financial and energy sectors of Hong Kong Stock Connect, while 35% is invested in high-dividend companies in mature markets such as Japan and Australia. The E Fund AI ETF covers core AI companies listed in Hong Kong and the US, selecting 50 constituent stocks. Its top five holdings are Nvidia, SMIC, Hua Hong Semiconductor, Horizon Robotics, and Alibaba. While funds are rapidly flowing into Hong Kong Stock Connect southbound ETFs, their high threshold of 500,000 yuan has deterred many investors. In contrast, the participation threshold for mutual recognition funds is much lower, and mutual recognition funds have independent quota mechanisms that do not conflict with QDII quotas. Mutual recognition funds, simply put, are cross-border investment mechanisms that allow overseas funds to sell in mainland China and mainland funds to sell overseas. They are divided into two main categories: northbound funds and southbound funds. Wind data shows that there are currently 174 northbound mutual recognition funds (different share classes are counted separately), with investment scope covering major markets such as Hong Kong, the Asia-Pacific region, and the United States. Mutual recognition funds offer a wide variety of share classes, covering multiple currencies including RMB, USD, and HKD, and include different types such as cumulative dividends and periodic dividends. Taking JPMorgan International Bonds as an example, it offers six types: JPMorgan International Bonds - PRC CNY Hedging Cumulative, JPMorgan International Bonds - PRC CNY Hedging Monthly Dividend, JPMorgan International Bonds - PRC CNY Cumulative, JPMorgan International Bonds - PRC CNY Monthly Dividend, JPMorgan International Bonds - PRC USD Cumulative, and JPMorgan International Bonds - PRC USD Monthly Dividend. Among them, RMB shares are redeemed and subscribed in RMB, while RMB-hedging shares further lock in exchange rate risk on the basis of pricing, suitable for investors who do not want to bear exchange rate fluctuations. USD shares are redeemed and subscribed in USD. Accumulated shares will reinvest dividends, suitable for long-term holding. Monthly dividend shares regularly distribute cash, suitable for investors with cash flow needs. Currently, products investing in Hong Kong, Asia, and the Asia-Pacific region are the mainstream among mutual recognition funds. Specifically, products investing in mainland China and Hong Kong are mainly distributed in the financial, healthcare, and telecommunications services sectors, and their top three holdings almost all include one or both of Tencent Holdings and Alibaba, such as Morgan Stanley Hong Kong Fund, Hang Seng China Enterprises Index Fund, and BOC Hong Kong Hong Kong Equity Fund. Products investing in Asia and the Asia-Pacific region almost all have TSMC as their largest holding, and Samsung Electronics and SK Hynix also frequently appear in the top three holdings of these products, such as Amundi Hong Kong-Asia Pacific New Power Dividend Fund, Morgan Stanley Asia Equity High Yield Fund, and East Asia Union Bank Asia Pacific Diversified Income Fund. In addition, products investing globally, with a focus on the US market, have Nvidia as their largest holding in all of them, and also hold significant positions in US high-tech companies such as Apple, Google, and Microsoft, such as the BOC Hong Kong Global Equity Fund, Amundi Hong Kong - Flexible Allocation Growth M, and Pictet Strategic Income Fund. It should be noted that redemption of mutual recognition funds is relatively slow, typically taking 5-10 business days (and possibly longer in extreme cases). However, the purchase channels have gradually expanded, and they are currently available on mainstream internet platforms such as Alipay and Tiantian Fund, as well as many banks.

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