MRF approvals face potential delays amid A-share unrest

Approvals under China’s cross-border trading schemes could be delayed this year as regulators make stabilisation of the A-share market their top priority.

The mutual recognition of funds (MRF) scheme and the upcoming Shenzhen-Hong Kong Stock Connect could suffer from the delays as resources are diverted elsewhere, according to market watchers.

Sebastien Chaker, head of Asia at fund transaction network provider Calastone, said that Hong Kong funds looking to gain approval for northbound sales were likely to suffer with the China Securities Regulatory Commission’s (CSRC) attention diverted elsewhere.

“With the high volatility of the Chinese stock markets, it is not a surprise to anyone that the CSRC is focusing on other matters and therefore one can expect delays in approvals of Hong Kong funds [in the northbound],” Chaker said.

“Based on our discussions with fund managers and distributors, the general view is that there will be little action before the end of the summer.”

With the market turmoil, Chaker said it might not be the best time to start promoting mainland Chinese funds in Hong Kong; as a result, firms could delay their sales and marketing operations even if they win a southbound licence.

Chaker originally expected the first MRF fund to receive approval one month after the programme went live on July 1.

Sandra Lu, partner at Shanghai-based law firm Llinks, has said that the CSRC had not yet approved any northbound funds which had applied for the MRF green light.

“The CSRC’s manpower situation is tight, and stabilising the stock market has been its top priority. Its funds department has had to spend time on other projects and MRF is a new project, thus the approval process will take longer than expected,” Lu told the Hong Kong Economic Times in late July.

The market’s concerns are not limited to MRF, with other schemes also facing expansion delays.

Wang Tao, chief China economist at UBS, has said the Chinese government could be more cautious in its liberalisation programme, and pilot schemes such as Shenzhen-Hong Kong Stock Connect and QDII2 (qualified domestic institutional investor 2) could face launch delays due to the recent equity market volatility. 

In a conference call in late July, Wang said there had been speculation about manipulation by foreign investors during the A-share market turbulence; the government feared that opening the capital account further and allowing abundant liquidity flowing in and out could cause even more volatility on the mainland equity market.

"The [mainland] regulators’ top priority is on focusing on stabilising the stock market," Charles Li, chief executive of Hong Kong Exchanges & Clearing (HKEx), said last Friday (August 7) in response to concerns that recent market swings could delay the launch of Shenzhen-Hong Kong Stock Connect. He said that if the A-share market returned to normal, “[I] believe there will be news to be announced.”

But Li said the Shenzhen trading link could go live three to four months after regulators approved it. “The direction of reforms and internationalisation will not change," he added.

Xiao Zhijia, deputy director of the Shenzhen Financial Service Office, last Friday told the Shenzhen Special Zone Daily that the central government had decided that Shenzhen Connect would go live this year, and the relevant parties would choose the best time to implement it.