Latest step in opening of mainland financial market
The Chinese mainland and Hong Kong have approved the first funds to be marketed under a long-awaited cross-border program, but unfortunate timing, lack of variety and the growth of alternative investment options have taken the sheen off the initiative.
The China Securities Regulatory Commission and Hong Kong Securities and Futures Commission said Friday seven funds could be marketed in each other's territory under a "mutual recognition of funds" program three years in the making.
The program has been hailed as the latest milestone in the opening up of China's financial markets by allowing global asset managers to tap into Chinese household savings via funds in Hong Kong.
But the approved funds all invest client money in shares and bonds in Asia and China in particular, where the benchmark share price index fell 34 percent over June to October. The MSCI Asia-Pacific (ex-Japan) index has also lost 13 percent this year and is widely expected to fall in 2016 as various factors dampen investment in the region.
"Interest in the mutual recognition of funds will be curbed at the beginning as the stock markets in both the mainland and Hong Kong are hovering around low levels and lack upward momentum," said chief economist Liao Qun at Citic Bank International. "Investors have concerns about each other's market."
The funds' appeal has also been dulled by other new cross-border programs such as the Hong Kong-Shanghai Stock Connect, where shares can be traded on each other's exchange, and relaxation to other programs that allow domestic institutions to put money into overseas stocks and bonds.
The mainland and Hong Kong securities regulators began discussing mutual fund recognition in 2012 but later prioritized the Stock Connect. The funds program formally started in July 2015 but with Chinese share prices in free fall, market participants had to wait another five months before four mainland and three Hong Kong funds became the first of 47 applicants to gain approval.
Global Times-Agencies
