Fund houses face tough sell in city after 2011 mess
Proposed mutual-recognition scheme runs risk of being a repeat of one failed RQFII plan
A landmark plan to allow cross-border sales of mutual funds directly between Hong Kong and the mainland could turn out to be an exercise in futility for mainland money managers, if past experience with yuan-denominated institutional investments is any guide.
When Beijing launched renminbi qualified foreign institutional investors (RQFII) schemes in December 2011, it granted licences to 21 subsidiaries of mainland securities firms and fund houses to sell yuan fund products in Hong Kong that would invest in mainland-listed stocks and bonds.
Sales bombed and many firms struggled to fill even half their target quota. Why? Because while the firms were big names on the mainland, they were largely unknown to investors elsewhere.
The China Regulatory Securities Commission (CSRC) appears to have taken this fact on board. Its recent expansion of RQFII providers to 28 included Hong Kong brand names like HSBC, Hang Seng Bank and BOCHK Asset Management.
Maybe that's a sign of a change of tack at the CSRC that bodes well for the selection of mainland fund houses it will permit to sell products here.
The eerie quiet from mainland money managers on the prospects for sales in Hong Kong suggests wary sentiment.
There are more than 1,000 mainland-domiciled mutual funds that could benefit from the mutual-recognition programme being proposed as part of an enhancement to the Closer Economic Partnership Arrangement (Cepa).
Sales channels could be a particular problem for them, given that many Hong Kong investors buy their fund products at banks. Few mainland mutual managers have sales agreements with local lenders or brokers here.
Meanwhile, it won't have escaped the attention of even the least savvy investor that the Shanghai stock market has been among the worst performers worldwide for the past two years.
That's going to make for an even harder sell in a Hong Kong market that is home to a wide range of funds that channel money all over the world. Of the 1,845 funds authorised for sale by the Securities and Futures Commission, only 318 of them are domiciled in Hong Kong.
If mainland money managers want to see their funds sell well in Hong Kong, they'll need to do more work now on building sales networks. Fail to do that and the risk is RQFII redux.