Topics in this section: - Foreign mutual funds to tap China's Greater Bay Area gateway - Hong Kong fund sales could nearly triple by 2025 - New applications and funds awaiting approval - Hopes for restrictive requirements to be eased - Pace of regulatory approvals picks up
These analyses are by Bloomberg Intelligence senior analyst Francis Chan and contributing analyst Sharnie Wong.
International mutual-fund sales to mainland China's retail investors could potentially triple by 2025 as the government positions the Greater Bay Area as a springboard for cross-border investment. Easing requirements and faster application approvals should benefit asset managers that include JPMorgan, Fidelity, Amundi and Value Partners.
Hong Kong fund sales could nearly triple by 2025
Assets under management of Hong Kong public funds authorized to sell in mainland China should rise over the long term, despite volatility due to market sentiment and yuan exchange rate movements. Demand should be boosted by mainland investors' growing need to diversify investments outside China and the faster pace of approvals for Hong Kong public-funds distribution on the mainland. Hong Kong fund sales in China could exceed 31 billion yuan by end-2025, up from 10.5 billion yuan at end-April if the growth trajectory over the past two years persists, we calculate.
Sales of Hong Kong public funds to mainland Chinese investors are still in their infancy compared to the city's $1.4 trillion of AUM of authorized unit trusts and mutual funds. Mainland funds sold in Hong Kong are even smaller, at just 368 million yuan at end-April.
New applications and funds awaiting approval
More fund managers with operations in Hong Kong will likely use the MRF program to tap wealth in the Greater Bay Area and the rest of China over the long term. Eleven new applications were submitted since end-2017 and 10 were pending approval as of May 31. About 180 Hong Kong-domiciled funds meet the MRF's eligibility criteria. Fidelity applied for the first time in December for two of its funds, the Hong Kong Equity Fund and Asia Pacific Equity Fund. JPMorgan operates four funds under the MRF program and has two more awaiting approval.
The China Securities and Regulatory Commission has cleared the backlog of applications received before 2018.
Hopes for restrictive requirements to be eased
A key limitation for funds in Hong Kong aiming to expand in mainland China under the MRF is that 50% must be sourced from investors in Hong Kong. The industry hopes for this rule to be removed as it restricts the potential size and growth rate of funds under management, given the maturity and smaller size of Hong Kong's unit trusts and mutual funds market, which amounted to $1.43 trillion at end-2018. Mainland China's mutual funds under management was 13 trillion yuan ($1.9 trillion) at end-2018 and is forecast to reach $17 trillion by 2030, according to Deloitte's Casey Quirk.
Funds are required to be domiciled in Hong Kong, have a minimum of 200 million yuan and a track record of at least a year.
Pace of regulatory approvals picks up
Ten Hong Kong funds have been approved by China's securities regulator to sell to mainland retail investors since the start of 2018, vs. 10 approvals over two-and-a-half years from when the Mutual Recognition of Funds program started in July 2015 through end-2017. The latest approval was granted to Haitong's Asian High Yield Bond Fund in April.
Funds managed by JPMorgan, Schroders, Amundi, Hang Seng Investments, Bank of China (Hong Kong), China Construction Bank and Zeal were among the first to receive regulatory approval under the MRF.
