China-Hong Kong Mutual Fund Sales Seen Starting After Rout Eases

  • ICBC Credit Suisse JV sees sales beginning by the end of 2015
  • Plan gives international investors new access to China

China and Hong Kong will likely approve cross-border sales of mutual funds by the end of 2015, according to a joint venture between Industrial and Commercial Bank of China Ltd. and Credit Suisse Group AG, after stock-market turmoil caused months of delays.

“China-Hong Kong fund mutual recognition should be introduced in the fourth quarter and we hope to be among the first batch,” Richard Tang, chief executive officer of the Hong Kong unit of ICBC Credit Suisse Asset Management Co., said in an interview. The firm had 750 billion yuan ($118 billion) of assets under management as of June 30.

Mutual recognition would open a new channel for foreign asset-management firms to tap household savings in China, made inaccessible by tight capital controls. While mutual fund sales were supposed to have started in July, they were postponed because of a rout of Chinese stocks, people with knowledge of the matter said in August.

President Xi Jinping said last week unprecedented intervention in the equity market helped reduce the risk of the rout spilling over into the broader economy. The benchmark Shanghai Composite Index has risen 4.3 percent from the August low.

The China Securities Regulatory Commission didn’t respond to a faxed query sent on Tuesday about the start of mutual recognition. Hong Kong’s Securities and Futures Commission couldn’t immediately comment.

Technology Companies

The plan will enable 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.

ICBC Credit Suisse will start selling fund products early next year tracking the S&P China 500 Index, a gauge that includes overseas listed Chinese e-commerce and technology companies like Alibaba Group Holding Ltd. and Baidu Inc., Tang said.

A 41 percent tumble for the Shanghai Composite since this year’s peak in June has lowered valuations, with the benchmark gauge now trading at 15.2 times reported earnings, compared with 25.6 times three months ago.

“Some sovereign wealth funds and professional investors think it can be a good time to add Chinese stock allocations because of valuations,” Tang said.

— With assistance by Heng Xie, and Shidong Zhang

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