- Mutual recognition allows foreign firms to tap Chinese savers
- Approval delayed by stock-market turmoil earlier in the year
China and Hong Kong regulators will announce approval of the first cross-border mutual funds as early as tomorrow, 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 requesting more information from some, one person said. The CSRC didn’t immediately reply to a fax seeking comment. The press office of Hong Kong’s Securities and Futures Commission didn’t immediately reply to emailed request 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 percent from its August low and volatility ebbed. The fund sales were supposed to have started in July but were postponed because of the $5 trillion equity rout, people with knowledge of the matter said in August.
“The market was unstable after July," said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. in Hong Kong. “The Shenzhen-Hong Kong stock connect will be next."
The approvals would come 13 months after the start of Shanghai-Hong Kong stock link gave foreign investors greater access to mainland 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, Charles Li, chief executive officer of the Hong Kong Exchanges & Clearing Ltd., said in November.
According to the Hong Kong Economic Journal, which reported the news earlier Friday, no more than five funds for each market will sell as much as 20 billion yuan ($3.1 billion) of products on the other side. Most of the approvals were equity funds, the newspaper reported, citing unidentified people close to regulators and from the funds industry.
CIFM Asset Management Ltd. and Zeal Asset Management Ltd. were among those that applied to the SFC in July, while Hang Seng Investment Management Ltd. submitted for registration to the CSRC.
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.
— With assistance by Amy Li, Heng Xie, Jeanny Yu, and Kana Nishizawa