E Fund wants to help connect investors to opportunities in ‘new markets’
Chinese asset manager E Fund is seeking to facilitate more cross-border investment at a time of tight mainland capital controls and a gradual liberalisation of financial markets.
Chen Hongchu, the chief international investment officer of E Fund, says both domestic Chinese investors and foreign asset managers can benefit from its services.
“On the one hand, guidance is needed for mainland institutions and funds to test the waters of international markets. On the other, Chinese investment opportunities need to be promoted to the world,” said Chen. “From this point of view, we are more like a service-oriented company that serves customers to better adapt to a whole new market.”
E Fund, with US$179 billion in assets under management, ranks as one of the largest asset managers in China. The company provides services in mutual funds for qualified domestic institutional investors (QDII) in China, and qualified foreign institutional investors (QFII) and renminbi qualified (RQFII) global investors.
“The offshore units of Chinese asset managers can enjoy unique benefits by being set up in Hong Kong and backed by the mainland,” Chen said. “However being able to gain market trust and recognition is a common threshold to all Chinese asset managers.”
China is a capital excessive country, but huge savings are trapped inside the nation because of the government’s policy on capital outflows.
For example, the new Bond Connect scheme was only opened for the “northbound link” in July, allowing foreign investors to trade onshore mainland debt via Hong Kong, but the “southbound link” is still closed to Chinese investors to buy international bonds.
Similarly, the stock connect between Shanghai and Hong Kong, which had its third anniversary last month, has seen international investors trade 3.56 trillion yuan (US$541 billion) of shares listed in Shanghai as of the end of November. Overseas investors traded 867 billion yuan of Shenzhen-listed stocks via the tie-up with Hong Kong, which was established in December last year.
That is well above southbound trade of HK$3.64 trillion (US$466 billion) of Hong Kong-listed shares traded by mainlanders through the two channels.
Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojiao said in June that trillions of dollars worth of capital were expected to flow out of China in the coming decade when southbound links are fully opened.
E Fund, which first engaged with Hong Kong in 2008, has international investments of more than 63.5 billion yuan under management. Along with CSOP Asset Management, Fullgoal Asset Management and Bosera Asset Management, large Chinese asset managers have been expanding their offshore yuan business and listing products in overseas markets such as Europe and North America to make it easier for western investors to trade Chinese financial markets.
“Chinese asset managers benefited from the internationalisation process by being at the forefront of cultivating Hong Kong stock allocations early on,” E Fund said in a statement.
E Fund Hong Kong’s Greater China Leading Stock Fund has returned 47.7 per cent so far this year, compared with 36 per cent for the Hang Seng Index.
Meanwhile, less than a third of Chinese funds using the Connect Scheme have outperformed Hong Kong’s benchmark index this year, E Fund said, citing figures from Wind, a Chinese financial data provider.