MRF approvals putting pressure on RQFII funds

The fast-growing number of China funds approved for sale in Hong Kong under the mutual recognition scheme are tipped to put pressure on global managers of RQFII and QFII funds, as mainland-based firms’ products tend to offer better performance.

A further 10 mainland products got the green light from Hong Kong’s Securities and Futures Commission (SFC) on Tuesday, taking the total to 23. That is over 70% of the 30 or more funds seeking approval for southbound sale. They are expected to be offered for sale in the coming months.

The 10 new funds* are managed by Bank of China Investment Management, Bank of Communications Schroder Fund Management, China Merchants Fund Management, China Southern, China Universal and HuaAn Fund Management.

“It is going to be increasingly competitive among the southbound funds, but it is competition the Chinese managers are used to on the mainland,” said Stephen Baron, deputy director of strategic solutions at Shanghai-based consultancy Z-Ben Advisors. “The real worry is going to be for the RQFII managers in Hong Kong – they will be competing directly with these funds under MRF.”

Baron expects some southbound products to draw money from RQFII and QFII funds, since most mainland products in the MRF scheme have better performance than those run by international firms. Amid fierce competition, he said track record and team stability would be key factors.

The SFC approved the first batch of four funds for sale in Hong Kong on December 18, and the second batch comprising nine funds on December 30. But only three out of 17 Hong Kong-domiciled funds applying for northbound sale have been approved by the China Securities Regulatory Commission (CSRC) for sale on the mainland, on December 18.

However, it has emerged that mainland funds’ master agents in Hong Kong may have to delay launch of the products, as they need to amend sales materials due to a new ‘circuit-breaker’ mechanism in China, as reported.  

* The 10 funds are:

• BoC Income Mixed Securities Investment Fund
• BoC Sustainable Growth Mixed Securities Investment Fund
• Bocom Schroder Growth Mixed Securities Investment Fund
• Bocom Schroder Stable Allocation Mixed Securities Investment Fund
• China Merchants Industry Pioneer Mixed Securities Investment Fund
• China Southern Selected Value Mixed Securities Investment Fund
• China Universal Health Care Mixed Securities Investment Fund
• China Universal Privately-owned Enterprises Mixed Securities Investment Fund
• China Universal Selective Mixed Securities Investment Fund
• HuaAn Enhanced MSCI China A Index Securities Investment Fund