Korean investors have been increasingly setting their eyes on Chinese stocks after the launch of a Shanghai-Hong Kong stock connect program in search of higher returns amid the tepid local stock market, the nation's financial watchdog said Friday.

The combined transaction volume in the cross-border trading program by local investors via 13 Korean brokerage houses reached 1.16 trillion won ($1.07 billion) during 39 trading sessions between Nov. 17 and Jan. 15, according to data compiled by the Financial Supervisory Service.

Although the amount is small compared to the Seoul bourse's daily trading amount of 6 trillion won, the volume has picked up pace since the trading scheme took effect in mid-November.

The trading volume reached 278.2 billion won in the first month and more than tripled to 888.2 billion won in the second month, the FSS said. The combined net buying by local investors stood at 489.7 billion won during the 39 trading sessions.

"Although investment in Chinese stocks has not yet reached a level that can affect the domestic stock market, the transaction amount has been on a steady rise," an FSS official said. "Those who haven't started the investment are taking a wait-and-see approach after a sharp rally. We will continue to monitor trading activities."

Chinese stocks have emerged as an attractive investment destination as the domestic equity market has remained sluggish with a lack of momentum. Shanghai stocks enjoyed a multi-year rally in December thanks to the influx of offshore funds, though they suffered a sharp loss last week following investigations into high-margin trading.

Shanghai's benchmark index jumped 35.13 percent following the opening of the stock link, while Korea's benchmark KOSPI declined 1.17 percent in the same period. (Yonhap)