Why do Hong Kong funds sell well in China? Because they are cheap

Cross-border fund scheme requirement is good news for bar owners in Lan Kwai Fong

PUBLISHED : Monday, 16 May, 2016, 9:51am
UPDATED : Monday, 16 May, 2016, 9:51am

Hong Kong has a reputation as an expensive city.

But the cost of a Hong Kong-domiciled fund at home is considered cheap by mainland Chinese.

Fund managers told this White Collar columnist that the minimum an investor must pay for a fund product in mainland China is only about 100 yuan (HK$118.8) — which is a price for a lunch in the city’s Central district.

Mainland investors consider this a low-entry level price and attractive.

In Hong Kong, the minimum investment for fund products is usually about HK$10,000 — more than a month’s salary of many low-income people.

This is why Hong Kong-domiciled fund products are far more popular on the mainland than mainland funds sales in Hong Kong.

The mutual recognition scheme, which allows Hong Kong based funds to be sold on the mainland and mainland funds to be sold in Hong Kong, began in January.

Data from China’s State Administration of Foreign Exchange (SAFE) showed northbound fund sales, or the six Hong Kong based funds sold in China, reached 720 million yuan by the end of March.

That is about 16 times more compared with southbound sales of the 32 mainland funds sold in Hong Kong at 44.57 million yuan by the end of March.

This is also reflected on the mainland. Its 1.3 billion population compares with Hong Kong’s 7 million people. So size does matter.

While the A-shares market is volatile, mainlanders like to invest in Hong Kong funds that take a stake in overseas stocks and bonds markets.

Our regulator friend may like to take a look at a recent survey conducted by the Hong Kong Investment Funds Association (HKIFA). It showed 37 per cent of fund houses have applied to sell funds on the mainland and 9 per cent of fund companies plan to do so.

The HKIFA survey also showed the key changes that fund managers want to see. They include lowering the cap restricting Hong Kong funds to selling up to just 50 per cent of their assets on mainland China and the rest in Hong Kong or on the overseas market.

They also want to see their non-Hong Kong based funds allowed to be sold on the mainland and seek a relaxation of rules that require fund managers, the HKIFA survey said.

But not all share the views of the survey. Some overseas fund managers said they like these rules because they require investment based in Hong Kong, where they can work in the city’s Central district during the day and spend time with friends at Lan Kwai Fong at night.

The mutual recognition fund sales schemes are therefore good news for bar owners in Lan Kwai Fong.

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