MRF northbound flows soar, dominated by JPM AM

There was a huge rise in flows into Hong Kong products last month under the mutual recognition of funds (MRF) scheme, driven by Chinese demand for Asian bonds and with JP Morgan Asset Management totally dominating flows.

Net inflows to Hong Kong MRF products shot up to Rmb4 billion ($621 billion) in August, surpassing the Rmb3.9 billion in total flows for the first seven months of the year (see table below).

JP Morgan AM is by far the biggest winner under the MRF's northbound leg so far. Its two northbound products – Asian total-return bond fund and Pacific securities fund (a regional equity fund) – account for about 90% of gross northbound sales. 

Five Hong Kong funds recorded sales of Rmb4.1 billion and net inflows of Rmb3.9 billion in mainland in August, according to data from China's State Administration of Foreign Exchange. That represented around half the aggregate northbound sales of Rmb8.5 billion and half the aggregate net flows of Rmb7.8 billion in the first eight months of this year.  

Sales in August tripled month-on-month to Rmb4.14 trillion from Rmb1.33 billion in July, while net inflows nearly quadrupled to Rmb3.95 billion from Rmb1.11 billion. 

Source: Safe

JPM AM’s two MRF funds posted gross sales of Rmb3.6 billion in August and total sales of Rmb7.6 billion since it entered the MRF in January, accounting for 90% of sales under the MRF northbound leg. The firm started to offer the Asian bond fund in January and Pacific securities fund in March.

Henry Tong, the firm’s head of China retail business, told AsianInvestor that the strong sales volume in August was encouraging, given that MRF was still a new scheme.

Indeed, the MRF sales in August were surprisingly high compared to flows into recently launched bond funds under the qualified domestic institutional investor (QDII) scheme, said Liu Shichen, an analyst at Shanghai-based Z-Ben Advisors.

Beijing-based China Asset Management and Shenzhen-based China Merchants Fund completed fundraising for two QDII bond funds in July and September, respectively. The former raised Rmb1.9 billion and the latter Rmb200 million, according to the China Securities Regulatory Commission.

Broader distribution

One driver of JPM AM’s strong sales was that it recently broadened its distribution network. The firm firstly partnered foreign banks’ mainland branches, then it starting working with local commercial banks. It also launched a monthly automatic investment plan through Ant Fortune in the second quarter. Ant Fortune is a mobile wealth management application owned by Ant Financial, the financial services arm of Chinese e-commerce giant Alibaba.

JPM AM now offers its MRF funds through 15 mainland distributors, including six local commercial banks, namely Bank of China, China Construction Bank, China Guangfa Bank, China Merchants Bank, Minsheng Bank and Ping An Bank.

“Local banks’ branch networks are huge,” said Tong. “They have knowledge about overseas products but they took time to observe our fund’s performance.” The Asian bond fund has returned 8% this year in renminbi terms, he noted.

Domestic investors are looking for stable returns amid declining yields from commercial banks’ popular wealth management products, Tong added.

While JPM AM’s Asian bond fund has dominated the fund scheme, the other two equity funds – Zeal AM’s voyage China fund and Hang Seng IM’s China H-share index fund – have seen minimal sales so far. Mainland retail investors have been cautious, as the two products launched earlier this year when A-shares were falling, Liu observed.

Overall, Chinese retail investor demand for overseas exposure has risen this year, as QDII funds’ AUM increased 31% to Rmb90.9 billion as of August, from Rmb66.3 billion at end-2015, according to the Asset Management Association of China. Meanwhile, Chinese fund firms have put restrictions on large-amount subscriptions to QDII funds since January, as reported.