China, HK all set to sell mutual funds on both sides

SHANGHAI • China and Hong Kong regulators are expected to announce approval of the first cross-border mutual funds today, two people familiar with the matter said, after the summer stock-market rout set back the start date.

Not all funds that applied received the go-ahead, with the China Securities Regulatory Commission (CSRC) requesting more information from some, one source said. The CSRC and press office of Hong Kong's Securities and Futures Commission did not immediately reply to requests for comment.

Mutual recognition opens a new channel for foreign asset-management firms to tap household savings in China, where tight capital controls remain.

The approvals would show the Communist Party is more comfortable with allowing greater investment flows after the Shanghai Composite Index rebounded more than 20 per cent from its August low and volatility ebbed.

The fund sales were supposed to have started in July but were postponed because of the US$5 trillion (S$7 trillion) equity rout, people with knowledge of the matter said in August.

"The market was unstable after July," said Mr Sam Chi Yung, a strategist at Delta Asia Securities in Hong Kong. "The Shenzhen-Hong Kong stock connect will be next."

The approvals would come 13 months after the start of the Shanghai-Hong Kong stock link gave foreign investors greater access to China shares and allowed more domestic investors to buy stocks outside the country.

The start of an expansion to Shenzhen will likely occur next year and preparations may take another two months even after a formal announcement, Mr Charles Li, chief executive officer of the Hong Kong Exchanges & Clearing, said last month.

According to the Hong Kong Economic Journal, no more than five funds in each market will sell as much as 20 billion yuan (S$4.4 billion) of products on the other side.

Most of the approvals were for equity funds, the newspaper reported last week.

Mutual recognition of funds enables Chinese asset-management firms to sell their products to offshore investors, while giving their foreign counterparts direct access to the Chinese market. International managers previously tapped China's growing personal wealth by teaming up with local companies for mutual-fund joint ventures in the country.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on December 18, 2015, with the headline 'China, HK all set to sell mutual funds on both sides'. Print Edition | Subscribe