Chinese language cash rushes offshore by way of Hong Kong mutual funds

By Summer season Zhen and Jiaxing Li

HONG KONG (Reuters) – Chinese language traders are shopping for up massive quantities of Hong Kong mutual fund merchandise that make investments abroad, notably bonds, after authorities expanded a cross-border buying and selling channel this month and opened for them an avenue to get higher yields. 

A number of mutual funds which can be registered in Hong Kong and allowed to market merchandise to mainland traders had been bought out with 24 hours of opening for subscription originally of the 12 months, fund statements present.

The funds had reopened for subscription up to now week after China relaxed limits for Hong Kong funds which can be accepted to promote on the mainland beneath the Mutual Recognition of Funds ( MRF (NS:MRF)) scheme. It lifted the gross sales quota to a most of 80% of the funds’ complete property from Jan. 1 from the earlier 50% restrict.

The funding frenzy factors to pent-up demand in China for abroad investments at a time when bond yields are hitting document lows at dwelling, the yuan is at 16-month lows and the inventory market is struggling.    

“We have seen strong demand for abroad fund allocations, given the outperformance of abroad markets up to now two years,” mentioned Niki Wu, senior analysis analyst at Morningstar, primarily based in Shenzhen.

Funds that target U.S. Treasuries and different bonds appeared hottest with traders. 

Two bond funds run by JPMorgan – JPMorgan International Bond Fund and JPMorgan Asian Whole (EPA:TTEF) Return Bond Fund, needed to droop subscriptions by mainland traders this week after nearing their limits. 

Final week, ChinaAMC’s Choose Mounted Revenue Allocation Fund and E Fund (HK)’s Choose Bond Fund discovered their new quotas had been used up on the primary day of resuming subscriptions. 

Wu mentioned the current speedy decline in bond yields has led to the clamour for property.     

The yields on China’s 10-year authorities bonds have dropped greater than 100 foundation factors in a 12 months, and are beneath 1.6%, with the hole between them and U.S. Treasuries the widest in 24 years.

“It is actually onerous to search out property with comparatively excessive yield and low dangers,” she mentioned. 

First launched in 2015, the MRF has lengthy been a comparatively area of interest scheme attributable to restrictions on fundraising. 

By the top of November, there have been a complete of 41 Hong Kong funds collaborating in it, official knowledge exhibits, with aggregated gross sales amounting to 41.5 billion yuan ($5.66 billion), a 138% soar in comparison with that on the finish of 2023.

Ivan Shi, head of analysis at fund consultancy Z-Ben Advisors, described the MRF as a “launch valve”, given the shortage of quotas within the Certified Home Institutional Investor (QDII) program, which is China’s key outbound funding channel.

With an total fund gross sales quota of 300 billion yuan out there to mainland traders, the MRF scheme is poised to draw extra international funds.

“Some international companies, which have hitherto not been on this scheme in any respect, have began to work on it,” mentioned Sally Wong, chief govt officer of Hong Kong Funding Funds Affiliation.

($1 = 7.3316 Chinese language yuan renminbi)

(This story has been refiled so as to add the complete title and title of Sally Wong in paragraph 16)