By Summer Zhen and Jiaxing Li
HONG KONG (Reuters) – Chinese investors are buying large volumes of Hong Kong mutual fund products that invest abroad, particularly bonds, after authorities this month expanded the cross-border trading channel and opened the way for better returns.
Several Hong Kong-registered mutual funds that are allowed to market products to mainland investors sold out within 24 hours of opening for subscriptions at the start of the year, fund reports show.
The funds reopened for subscription last week after China eased restrictions on Hong Kong funds approved for sale on the mainland under the Mutual Recognition of Funds ( MRF (NS:)) scheme. He raised the sales quota to a maximum of 80% of the funds’ total assets as of January 1, from the previous limit of 50%.
The investment frenzy points to reduced demand in China for overseas investment at a time when bond yields at home are falling to record lows, the yuan is at a 16-month low and the stock market is struggling.
“We have seen strong demand for overseas fund allocations, given the better performance of overseas markets over the past two years,” said Niki Wu, senior research analyst at Shenzhen-based Morningstar.
Funds that focus on US Treasuries and other bonds appeared to be the most popular among investors.
Two bond funds managed by JPMorgan – JPMorgan Global Bond Fund and JPMorgan Asian In total (EPA:) Return Bond Fund – had to suspend subscriptions from mainland investors this week after they approached their limits.
Last week, ChinaAMC’s Select Fixed Income Allocation Fund and E Fund (HK) Select Bond Fund revealed that their new quotas were used up on the first day of resumption of subscription.
Wu said the recent rapid decline in bond yields has led to a clamor for the asset.
Yields on China’s 10-year government bonds have fallen more than 100 basis points in a year to below 1.6%, with the gap between them and US Treasuries the widest in 24 years.
“It’s really hard to find assets with a relatively high yield and low risk,” she said.
First introduced in 2015, the MRF has long been a relatively niche scheme due to fundraising constraints.
A total of 41 Hong Kong funds participated in it by the end of November, official data showed, with total sales of 41.5 billion yuan ($5.66 billion), a jump of 138% compared with the end of 2023.
Ivan Shi, head of research at fund consultancy Z-Ben Advisors, described the MRF as a “relief valve”, given the shortage of quotas in the Qualified Domestic Institutional Investor (QDII) programme.
Investors also took money out of China through the QDII program, the country’s key outbound investment channel.
On Thursday, the price of the consumer exchange-traded fund jumped more than 40% above its net assets due to quota restrictions, prompting warnings from fund managers about risk and a trading halt.
Assets of funds under the QDII program have grown to roughly 600 billion yuan, nearly double from two years ago, the latest official data showed.
With a total fund sales quota of 300 billion yuan available to mainland investors, the MRF scheme is poised to attract more global funds.
“Some global companies, which until now were not at all interested in this scheme, have started working on it,” said Sally Wong, chief executive of the Hong Kong Investment Funds Association.
($1=7.3316 yuan)
