Magazine issues » December 2016

HONG KONG: Close to an ocean of money

The Mutual Recognition of Funds scheme was a hot topic of discussion at an asset management briefing in Hong Kong. Alan Chalmers reports. Hong Kong is a financial hub and a gateway to China. Its role has only grown as China has opened up its capital markets with a series of access schemes, such as the Mutual Recognition of Funds programme between Hong Kong and the mainland. The much-discussed scheme allows eligible Hong Kong-domiciled funds to be sold in the mainland. China-domiciled funds enjoy the same treatment in Hong Kong. However, despite much enthusiasm surrounding the scheme, the small number of approvals, particularly of Hong Kong-domiciled funds, has disappointed many in the industry. This was one of the main topics of discussion at a conference held in Hong Kong in November and organised by financial infrastructure company Clearstream. The speakers were agreed on one point: mutual fund recognition – alongside the other China access schemes such as Stock Connect – has great potential. But more support from regulators may be needed to make the scheme a success. COLD MONEY
The conference began with an introduction from Esmond Lee, a former executive director of the Hong Kong Monetary Authority who now serves as a senior adviser to the Hong Kong Financial Service Board. Lee emphasised the stability of both Hong Kong as a financial centre and of its currency, the Hong Kong dollar. Although many people believe Hong Kong is a beneficiary of hot money, he argues the opposite. It is “cold money” that comes to Hong Kong because most of the invested money stays there, he says. Lee also remarked that while Hong Kong represents a small pool of money, its neighbour, China, represents an ocean of money, which makes Hong Kong an attractive investment centre. He was upbeat. China’s mainland markets are opening thanks to Stock Connect, which links the stock exchanges of Shanghai and now Shenzhen with Hong Kong. The industry now anticipates new initiatives such as Bond Connect, he added. FABULOUS FINTECH
Bernard Tancré, head of business solutions, investment fund services at Clearstream, gave a presentation of the issues affecting the industry. He said mutual fund recognition is still in its early stages, with relatively few funds approved for sale. This will be a long-term project. He was optimistic about exchange-traded funds (ETFs) and alternative funds, both of which are seeing growth. He also discussed financial technology, or fintech, which is expected to grow at a rapid pace. Fintech is likely to focus on post-trade digitisation, artificial intelligence, investment technology, such as robo-advisers, and alternative funding platforms such as peer-to-peer lending, he said. Tancré also gave a brief outline of Target 2 Securities, a pan-European settlement system, and predicted more integrated market solutions as clients look for ease of operation, cost-effectiveness and increased market access. SCEPTICAL VIEW
A panel discussed some of the issues raised by the earlier speakers. Stewart Aldcroft, managing director, Citi Markets and Securities Services, expressed frustration at the slow pace at which mutual fund recognition had been implemented. “Unfortunately, to date, mutual fund recognition has been massively disappointing to the Hong Kong fund management industry,” he said. “Through a combination of regulatory delays, obfuscation, perverse questions and, probably, inexperience, Hong Kong managers have not been able to get their funds approved by the CSRC [China Securities Regulatory Commission] for northbound use, yet there is clear evidence of a pent-up demand in the mainland. More help from the SFC [the Securities and Futures Commission, one of Hong Kong’s regulators] would likely be appreciated by the industry.” The discussion also covered the development of ETFs in Hong Kong and the outlook for Ucits funds. However, it was mutual fund recognition that elicited the most outspoken debate. Eleanor Wan, chief executive, BEA Union Investment, said fund companies must be patient as the scheme would take time to develop. “Mutual fund recognition is important to position Hong Kong as an asset management hub,” she said. “Although the current number of Hong Kong funds approved for distribution in China is small, it will potentially be a very big market for Hong Kong funds. “To be eligible to the scheme, the funds need to be set up and investment conducted in Hong Kong. With the differences in scale and operation model, fund managers need to be cautious on the cost involved. Nevertheless, it is a long-term business plan.” The panel also included Stephane Karolczuk, Hong Kong-based partner at law firm Arendt & Medernach, and was chaired by Tilman Fechter, global head of sales and relationship management, investment fund services, Clearstream. ©2016 funds global asia

Industry comments

Investing in tomorrow’s world

investmentAt times like these, HSBC Asset Management easily pivots towards emerging markets.

The spotlight on growth markets and the need to be nimble and dynamic is ever-sharper, given the difficulty in predicting monetary policy in the world’s major nations.

Sponsored feature: Navigating the complexities of FX execution and currency risk

A comprehensive, cost-effective, and transparent currency overlay hedging solution is crucial to mitigate FX exposure risks in the complex landscapes of Japan and China's FX markets, explains Hans Jacob Feder, PhD, global head of FX services at MUFG Investor Services.

Opinion

Transitioning to an era of scarcity

The world is transitioning from an era of commodity abundance to one of undersupply. Ben Ross and Tyler Rosenlicht of Cohen & Steers believe this shift may result in significant returns for commodities and resource producers over the next decade.

Asia credit: An outsized winner in the region’s energy transition?

Ross Dilkes, fixed income portfolio manager at Wellington Management, examines the opportunities and risks for bond investors presented by the region’s decarbonisation agenda.

A quiet revolution in Japan’s corporate governance

revolution, Japan, corporate governance, Shareholders, corporate, governance, standards, improvement, Tetsuro Takase, SuMi TrustShareholders in Japan no longer accept below-par corporate governance standards. Changes are taking place, but there are still areas for improvement, says Tetsuro Takase at SuMi Trust.

Why rising demand for healthcare is creating investment opportunities in China

rising demand, healthcare, investment, opportunities, China, Robert St Clair, Investment Strategy, Fullerton Fund ManagementRobert St Clair, head of investment strategy at Fullerton Fund Management, explores the reasons investors should be paying attention to the rising demand for healthcare in China.

Executive Interviews

Executive interview: PGIM CEO on where the ESG flowers should bloom

Sep 27, 2021

David Hunt, president and chief executive of PGIM, tells Romil Patel about leading a top 10 global asset manager in times where “empowering and encouraging the kind of investment decisions as...

Executive interview: Nicolas Moreau’s orderly transition

Jul 12, 2021

Nicolas Moreau, CEO of HSBC Asset Management, is moving to Asia as the firm looks to connect more directly with the region’s growth story. ESG is also a key focus – including the ‘just’ carbon...

Roundtables

India: An “obvious choice for global investors”

Jun 22, 2023

Funds Europe, the sister publication of Funds Global Asia, hosted an India investment discussion with two seasoned experts and asked if India is the ‘last one standing’ from the Brics phenomenon. We also hear that for India, the inclusion of Indian bonds in a major index may not be the desired...

Roundtable: Singapore comes of age as an Asian ESG hub

Dec 01, 2021

Strong ESG credentials strengthen the case for Singapore as a leader in Asia of the post-Covid recovery. Our panel discusses the risks and opportunities.