HSBC Global Asset Management pointed to difficulties in accessing mainland Chinese securities as it unveiled a China multi-asset income fund yesterday targeting Hong Kong retail investors.
The fund follows a raft of China equity and fixed income mutual fund launches in Hong Kong, numbering 16 in 2014, according to research house Morningstar.
China and income have been two of the hottest topics among new investment products in the city this year, noted Denis Gould, CIO for multi-asset and wealth at HSBC Global AM in Hong Kong.
However, the fund’s allocation is different from that of many new China funds, which tend to invest largely in onshore A-shares or the mainland interbank bond market, he noted.
Once it launches on November 21, the fund will allocate chiefly to offshore assets, including 50% in equities (mainly Hong Kong-listed H-shares), 28% in dollar bonds and 22% in renminbi (dim-sum) bonds.
It will also have exposure to mainland A-shares and onshore fixed income (for example, interbank treasury and corporate bonds). It will also consider investing in B-shares, overseas-listed Chinese stocks and exchange-traded funds tracking onshore China assets.
Initially, HSBC Global AM will not allocate and renminbi qualified foreign institutional investor (RQFII) quota to the new product. Gould said his team is comfortable with offshore exposure now and that the fund will gradually build in more onshore exposure.
The Hong Kong arm has invested its entire Rmb800 million ($131 million) of RQFII quota in the China fixed income fund it launched in July.
One way of doing so will be via the Shanghai-Hong Kong Stock Connect, slated to go live on November 17. Its exposure to A-shares through the trading link will not be more than 10% of the fund’s net asset value.
In addition to Rmb800 million of RQFII quota, HSBC Global AM’s Hong Kong arm has received QFII quota of $412 million. The London arm has won Rmb3 billion of RQFII quota and the Taiwan business QFII quota of $200 million.
By October fund houses had already used up the total Rmb270 billion of RQFII quota handed to Hong Kong and are awaiting expansion of the scheme by Chinese authorities. In fact, last week Alexa Lam, deputy chief executive of Hong Kong’s Securities and Futures Commission, urged them to make use of still-outstanding foreign RQFII quotas.
The initial public offering period for the new multi-asset fund is from November 10 to 21, with no specific fundraising target. It will be sold through HSBC and Hang Seng Bank in Hong Kong, with a minimum investment amount of Rmb10,000, HK$10,000 or $1,000 and renminbi, Hong Kong dollar and US dollar share classes available.