CSRC unveils mutual recognition first-movers

China's securities regulator has named the first managers, funds and distribution agents to have northbound mutual recognition applications accepted. The first-movers now face a months-long approval process.
CSRC unveils mutual recognition first-movers

China’s securities regulator has named the northbound first-movers under the mutual recognition of funds (MRF) scheme.

Applications from seven Hong Kong-based companies, comprising nine funds, have been accepted and named by the regulator.

These firms are expected to be the first to sell funds in mainland China when the final approval is given, likely later this year.

On Wednesday (August 19) the China Securities Regulatory Commission (CSRC) unveiled fund application details for northbound MRF, which was launched on July 1.

The regulator also named the local distribution agents to be used, with Zeal Asset Management teaming up with the mainland’s largest fund house Tianhong Asset Management.

Hong Kong managers have selected funds with various assets, including three Hong Kong-China equity funds, two global funds (equity and multi-income), three Asia-focused funds (equity, high-dividend equity, mixed assets), and one China offshore bond fund.

In all, nine mutual fund applications were named by the CSRC on August 7, according to Wednesday’s filing. A CSRC spokesperson, however, said a total of 12 Hong Kong fund applications were accepted last Friday (August 14). Details of the remaining three funds have not been published by the regulator.

The CSRC does not seem to be adopting a “first come, first served” approach. For example, Amundi’s application was filed on July 31 and was accepted by the CSRC one week later. In comparison, the other eight disclosed applications had to wait one month before being accepted. Domestic mainland funds usually have to wait one or two weeks before their application is accepted.

The regulator has not accepted all the fund applications; for example, JP Morgan Asset Management has only had two of its fund applications accepted, and is waiting for application acceptance of a third.

It is notable that Hong Kong funds under MRF fall under the CSRC category of “simple procedure”, which is a faster process usually reserved for mainland funds. In contrast, the “general procedure” has a longer waiting time for approval of structured funds.

Zeal, a Hong Kong-based boutique manager founded by former Value Partners executives, is seeking approval of its China equity fund and has appointed Tianhong as its agent. The firm said it was looking for digital distribution on mobile and internet platforms.

In recent years Tianhong has been innovatively using financial technology for fund distribution via its highly-successful Yu’EBao, a money-market fund sold through Alibaba’s mobile payment system Alipay. This week the Chinese e-commence giant launched its Ant Fortune mobile fund sales platform, and plans to sell Hong Kong funds under MRF.

When approached by AsianInvestor, Tianhong and Zeal declined to comment on their partnership.

JP Morgan Asset Management has had two funds - a global multi-income fund and an Asia-Pacific equity fund - accepted for application. The firm has appointed its China joint venture - China International Fund Management - as its mainland distribution agent.

Asked why JP Morgan AM had selected these two funds for application, Eddy Wong, the firm’s head of funds business for Hong Kong and China retail business, said that they both offered opportunities for investors to diversify their portfolios. He said the multi-income fund was a flagship product with a large AUM, and its Asian equity fund provided a good long-term track record.

BOCHK Asset Management, the asset management arm of Bank of China (Hong Kong), has had two funds - a Hong Kong and China equity fund and a China offshore bond fund - accepted for application. The firm has teamed up with BOC Investment Management (BOCIM), the fund company controlled by Bank of China, to act as distribution agent.

BOCI-Prudential Asset Management, a joint venture between Bank of China International and British life insurer Prudential, has also appointed Shanghai-based BOCIM as the mainland agent for its global equity fund.

Amundi meanwhile has had its application accepted for its Asian dividend income equity fund. The fund will be distributed via its mainland joint venture, which is a partnership with Agricultural Bank of China. The firm said this product was a simple and basic fund which could test mainland investors’ appetite, but it does not have a timeframe to market it yet.

Hang Seng Bank has teamed up with China Construction Bank as its agent for distribution of its China H-share index fund, which has also been accepted for application.

The regulator accepted Schroders’ application for sale of its Asian high-dividend equity fund.

The CSRC’s approval process has been predicted to face delays because its resources have been focused on the stabilisation of the volatile A-share market. And despite mainland China’s liberalisation reforms and the huge potential domestic pool of funds, analysts expect first-movers to make only thin profits in the early stages.

To see the CSRC’s mutual recognition filing, click here.

¬ Haymarket Media Limited. All rights reserved.