How Are Southbound Stocks Determined? What Are the Inclusion Criteria?
Southbound Stocks refer to the list of Hong Kong stocks eligible for mainland investors, determined by the Shanghai and Shenzhen Stock Exchanges under the Implementation Measures for the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs, on the basis of constituents of the Hang Seng Composite Index (HSCI). The inclusion criteria cover four paths: constituents of the Hang Seng Composite LargeCap Index, constituents of the Hang Seng Composite MidCap Index, small-cap index constituents meeting the market capitalization threshold, and the H shares of A+H issuers listed on SEHK.
1. Index linkage: the Hang Seng Composite Index as the main gateway
Index constituent path: The determination of Southbound Stocks is anchored in the Hang Seng Composite Index system: constituents of the Hang Seng Composite LargeCap Index (HSLI) and the Hang Seng Composite MidCap Index (HSMI) are transferred into Stock Connect Southbound with no additional market capitalization requirement.
Small-cap market capitalization threshold: Stocks that are constituents of the Hang Seng Composite SmallCap Index (HSSI) must also satisfy the condition that the average monthly market capitalization over the twelve months preceding the adjustment review date is not less than HK$5 billion; for stocks listed for less than twelve months, market capitalization is calculated over the actual listing period.
2. H shares of A+H issuers: automatic inclusion
Automatic inclusion path: H shares listed on SEHK by A+H issuers — companies with A shares listed on a mainland exchange and H shares listed on SEHK — fall directly within the scope of Southbound Stocks, free from HSCI constituent eligibility and the market capitalization thresholds above.
Effective timing for newly listed A+H shares: Where a company newly lists its H shares on SEHK, the H shares are transferred into Southbound Stocks once the price stabilization period has ended and the corresponding A shares have been listed for ten trading days.
3. Compliance exclusions
A+H exception: Where the A shares of an A+H issuer are placed under risk warning or enter a delisting arrangement, the H shares of that issuer are excluded from Stock Connect Southbound.
Currency and other circumstances: Stocks quoted and traded on SEHK in currencies other than the Hong Kong dollar, together with other circumstances as determined by the exchanges, are excluded from Southbound Stocks.
4. Additional thresholds for Weighted Voting Rights (WVR) companies
Listing history and market capitalization: For companies with a Weighted Voting Rights (WVR) structure, first-time inclusion in Stock Connect Southbound also requires: listing on SEHK for six months plus twenty Hong Kong trading days; and an average daily market capitalization over the 183 Hong Kong trading days preceding the review date (the nineteenth Hong Kong trading day after six months of listing) of not less than HK$20 billion.
Liquidity requirement: Aggregate turnover over the 183 trading days preceding the review date of not less than HK$6 billion, and no public sanction by SEHK since listing for breaches of the corporate governance, disclosure, or investor protection measures applicable to WVR companies.
5. Two fast tracks for newly listed stocks
Fast index inclusion: Where a new listing's closing market capitalization on the first trading day ranks within the top 10% of existing HSCI constituents (by number of constituents), it is typically added to the Hang Seng Composite Index after the close on the tenth trading day following listing, and subsequently transferred into Stock Connect Southbound.
Fast transfer for A+H new listings: H shares of A+H issuers bypass the semi-annual review and are transferred in once the price stabilization period has ended and the corresponding A shares have been listed for ten trading days.
NewTimeSpace Observation: The inclusion framework adopts a dual-track design of index membership plus additional thresholds, with the H shares of A+H issuers and regular index constituents following two independent channels. The most valuable observation window for investors lies between each HSCI review announcement and its effective date: list changes turn from expectation to announcement during this period, and the turnover and volatility of the stocks involved typically expand markedly, making this window a component of routine monitoring.
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