New China trading limits may delay MRF sales

New Chinese stock-trading limits are likely to delay southbound (China-to-Hong Kong) sales under the mutual recognition of funds (MRF) scheme, as master agents in Hong Kong said they will need more time to amend sales documents to reflect the new market feature. 

The mainland’s so-called index ‘circuit breaker’ – announced on December 4 – went live on January 1 this year and was triggered on the first trading day (yesterday, January 4). Both the Shanghai and Shenzhen stock exchanges halted trading yesterday at 1:33pm local time after the CSI300 index fell 7% to 3,469 points, meaning all mutual funds had to suspend share subscriptions and redemptions. 

Hong Kong’s Securities and Futures Commission (SFC) approved the second batch of mainland funds for sale in the city last week, but master agents are in no hurry to launch them due to both the new circuit breaker and negative sentiment on Chinese equities. The first batch – comprising four southbound and three northbound products – was approved on December 18. 

Overall, 13 Chinese (southbound) funds have been approved by the SFC for sale in Hong Kong: three from China International Fund Management (CIFM), two from China AMC, two from GF Fund, two from HSBC Jintrust, two from ICBC-Credit Suisse (ICBC-CS), one from Dacheng Fund and one from Invesco Great Wall (IGW). More than 30 mainland funds have applied for approval since MRF launched in July.

GF International and HSBC Global Asset Management offered their first southbound MRF funds for sale on December 29. 

However, Invesco, the master agent of IGW, and JP Morgan Asset Management, CIFM’s master agent, said they would need more time to amend sales materials and that this might slightly delay the launch of southbound funds. 

Terry Pan, chief executive for Greater China, Singapore and South Korea at Invesco, said the firm had to amend offering documents as the circuit breaker had not been announced when Invesco applied for approval last July. As the distribution agent for IGW’s Core Competence Mixed Securities Fund, Invesco had agreed with some 10 Hong Kong distributors that the launch would happen in late January. 

JP Morgan AM will partner CIFM (HK), the Hong Kong unit of its mainland joint venture CIFM, to sell three approved funds in Hong Kong. Eddy Wong, head of Hong Kong and China retail business at JP Morgan AM, said it planned to launch the funds in late January via 10 distributors, mainly banks. 

Wong added that the firm was in no rush to get the funds launched, and that it needed to update sales materials because of the circuit breaker.

Elvin Yu, head of international sales and client relationships at ICBC-CS (HK), said: “Hong Kong and overseas investors, both retail and institutions, have a ‘wait and see’ attitude on Chinese equities now.” ICBC-CS has maintained its original plan to launch MRF funds in late February, after Chinese new year, added Yu.