Across The Border | Hong Kong-China cross-border fund sales scheme struggles to attract investors

Waning investor interest for mainland China stocks and a glacially slow fund approval process are factors for a disappointing uptake in the cross-border mutual fund recognition scheme, according to industry players.

The scheme which debuted in Hong Kong in July 2015 featured a combined two-way investment quota of 600 billion yuan (US$87.12 billion), or 300 billion yuan of cross-border flows in each direction. At the time of launch, the scheme was touted to eventually support 100 Hong Kong-domiciled funds and 850 mainland Chinese funds.

However, so far, only six Hong Kong funds have been approved by the China Securities Regulatory Commission to be sold in the mainland, while Hong Kong regulators have approved 49 mainland funds.

“The tight regulatory approval is a major obstacle as the CSRC has not approved many Hong Kong funds to be sold in the mainland. It would be hard to see a very active cross border fund sales scheme with so few funds available in the mainland,” said Joseph Tong Tang, chairman of Morton Securities.

In terms of sales, mainlanders channelled 10.6 billion yuan into Hong Kong funds during January 2016 to February 2017, according to figures released by the State Administration of Foreign Exchange.

In spite of the fewer funds available, mainlanders outweighed foreign investors by a factor of 64 times, as the mainland funds attracted 164.9 million yuan of funds from Hong Kong.

Analysts said mainland investors appear to be bypassing the fund scheme in favour of the stock connect schemes which link Hong Kong to the Shenzhen and Shanghai stock markets, allowing investors direct access to stocks on each side of the border subject to quotas.

The 10.6 billion yuan invested by mainlanders into the six Hong Kong funds is equivalent to 1.5 days of average daily turnover for mainland buyers via the Shanghai and Shenzhen stock connect.