China, Hong Kong Approves First Funds for Mutual Recognition

China and Hong Kong regulators approved the first cross-border mutual funds after the summer stock-market rout set back the start of the program.

Four China funds and three Hong Kong funds were registered, China Securities Regulatory Commission spokesman Zhang Xiaojun said at a briefing today. Regulators received 17 applications to register Hong Kong funds and 30 for China funds, Zhang said.

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

“Seven is such a small number," said Steven Leung, an executive director for institutional sales at UOB Kay Hian (Hong Kong) Ltd. “Maybe officials don’t want to approve too many funds especially towards the end of the year and the market is getting quite thin. So they’re trying to manage potential unexpected risks."

Today’s approval comes 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. Investors are still awaiting for the start of a similar program that links with Shenzhen stock exchange.

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