Across The Border

Fund managers upbeat despite slow start to cross-border sales between China, Hong Kong

PUBLISHED : Tuesday, 29 March, 2016, 1:45pm
UPDATED : Tuesday, 29 March, 2016, 3:48pm

The long-awaited cross-border fund sales scheme has had a slow start but fund managers are still upbeat on its long-term prospects.

The fund arms of ICBC Credit Suisse, Hang Seng Bank and JP Morgan have recently started selling mutual funds in China and Hong Kong under the cross-border scheme that started from July last year. The scheme allows funds domiciled in mainland China and in Hong Kong to sell across the border.

With a total quota set at 600 billion yuan, split equally between fund sales in China and Hong Kong, the scheme had raised hopes of fund managers on either side of the border. But Hong Kong’s Securities and Futures Commission (SFC) and its mainland counterpart, China Securities Regulatory Commission (CSRC), took more than six months to approve the first batch of funds for cross-border sales even though they had initially promised “speedy approval” in six to eight weeks.

More cross-border fund flows needed to maintain momentum of yuan’s internationalisation

There has also been an imbalance in approvals on the two sides. The SFC has approved 24 mainland Chinese funds to be sold in Hong Kong while the CSRC has only cleared three Hong Kong-based funds to be sold in China.

But ICBC Credit Suisse Asset Management (International) head of international sales and client relationships Elvin Yu said that despite the slow start, he believes the scheme will grow in strength in the long term.

“We take a very long-term view of the scheme and do not mind the lengthy process of approval. This is a new scheme and it is normal for things to be slower at the beginning. When both regulators and market participants gain more experience, the process will get quicker and investors will also learn about the benefits of buying fund products under this scheme,” Yu told the South China Morning Post after his company launched two China-based funds in Hong Kong under the scheme.

“This may well be a blessing as the stock markets in both Hong Kong and China have been very volatile from July to February. With the currency and stock markets stabilising in March, this may be a better time to launch our fund products,” he said.

ICBC Credit Suisse this month announced the launch of the two Chinese funds in Hong Kong, including a core value mixed fund and a prudent growth mixed fund.

Managed by its Beijing investment team, these two have long track records, said Yu. They will be sold through ICBC Asia and other wealth management platforms.

“The two funds have different but complementary investment styles that cater to different investment needs and appetites,” he said.

Yu said that even though investors can now invest in the Shanghai A-share market through the Stock Connect scheme between Hong Kong and Shanghai, he believes many would still prefer to invest in fund products focusing on Chinese stocks.

“Mutual funds provide an easy way to invest in the A-share market as we have a professional team to invest for them. Many retail investors may not be familiar with all Chinese A-share stocks while some may be too busy to invest themselves,” he said.

Hang Seng Bank started selling its H-share index fund in China two weeks ago through its own branches and those of China Construction Bank in 37 provinces and cities in China.

Cross-border fund quota set at 600 billion yuan and will launch on July 1

“We are happy with the sales volume so far,” said Andrew Fung, executive director of Hang Seng Bank.

Hang Seng China H-Share Index Fund is among the few that got the green light to sell in China.

“The public offering of the fund demonstrates how our good cross-border connectivity enables us to capitalise on business opportunities arising from policy developments such as the mutual recognition of funds. Hang Seng Investment will continue to develop and provide investment fund products and services to meet the diverse wealth management needs of its customers,” Fung said.

JP Morgan Asset Management has got the go-ahead to sell both northbound and southbound funds under the scheme. It can now sell a securities and a bond fund in China, with China International Fund Management acting as its master agent. It can also now sell three Chinese funds in Hong Kong through its 10 distribution partners, including banks and independent financial advisers.

Eddy Wong, head of funds business at JP Morgan Asset Management Hong Kong and China retail business, said the mutual recognition scheme would allow the company to expand its offerings to investors in both Hong Kong and China.

“By enhancing our asset class offering beyond fixed-income to equity, we believe the new fund will provide extra diversification in the current volatile market and serve to expand investors’ geographical coverage to the entire Asia-Pacific region,” Wong said.