Chinese language cash rushes offshore through Hong Kong mutual funds

By Summer time Zhen and Jiaxing Li

HONG KONG (Reuters) – Chinese language buyers are shopping for up giant 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 might be registered in Hong Kong and allowed to market merchandise to mainland buyers had been bought out with 24 hours of opening for subscription initially of the 12 months, fund statements present.

The funds had reopened for subscription previously week after China relaxed limits for Hong Kong funds which might be accepted to promote on the mainland underneath 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 report lows at house, 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 previously two years,” mentioned Niki Wu, senior analysis analyst at Morningstar, primarily based in Shenzhen.

Funds that concentrate on U.S. Treasuries and different bonds appeared hottest with buyers. 

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 buyers this week after nearing their limits. 

Final week, ChinaAMC’s Choose Fastened Earnings 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 latest fast 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 under 1.6%, with the hole between them and U.S. Treasuries the widest in 24 years.

“It is actually onerous to seek 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 as a result of 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% leap 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 obtainable to mainland buyers, the MRF scheme is poised to draw extra world funds.

“Some world companies, which have hitherto not been on this scheme in any respect, have began to work on it,” mentioned Sally Wong, chief government 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)