Mainland AMs grow Stock Connect offerings

Added 19th April 2016

Mainland investors crave offshore assets, and China-based mutual funds have increased equity buying through the Stock Connect to meet demand, mainland media reported.

Mainland AMs grow Stock Connect offerings

The funds aim to increase investment in stocks listed in Hong Kong using the Shanghai-Hong Kong Stock Connect scheme.

Among roughly 20 funds with a Stock Connect theme, at least eight were set up or raising capital this year, including those from ICBC, GF Fund Management and Qianhai-based First Seafront Fund Management, according to China Securities Journal.

And more are applying to issue such funds. Among them are HSBC Jintrust Fund Management, BOCOM Schroder Asset Management and China International Fund Management (a joint-venture between JP Morgan Asset Management and Shanghai International Trust), the report said.

First Seafront filed nine applications to transact using the cross-border trading link.

Invesco Great Wall’s China-HK Stock Connect Equity Fund is so far the largest one with RMB5.93bn ($915.7m) of assets under management as of end-2015. But its fund size has significantly shrunk from the RMB11bn peak when it was first launched in April last year.

The outflow was partly due to its undeperformance – fund returns have fallen 17.5% in one year’s time.

Investors are craving offshore assets, in particular US dollar-denominated products as concerns grow over the depreciating yuan and domestic market volatility.

The Stock Connect might be the only way left for mainland mutual funds to increase US dollar assets. The official channel, the qualified domestic institutional investor (QDII) scheme, has not seen any new quotas being granted by The State Administration of Foreign Exchange(SAFE)  since March 2015, the report noted.

Three new QDII funds raised RMB3.43bn in the past three months using the unused quotas, according to researcher Howbuy.

Another channel, the Mutual Recognition of Funds scheme to allow cross-border fund sales, is off to a slow start. The MRF scheme recorded a net inflow of RMB197.7m as of end of February, according to SAFE.

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