Hong Kong’s Securities and Futures Commission (SFC) has approved the first batch of RQFII products, while Chinese regulator Safe has allocated over half its initial investment quota for the programme to 10 new licence holders.

The SFC gave the operational go-ahead for four mutual funds on December 30 under the RMB Qualified Foreign Institutional Investor (RQFII) programme, which allows the Hong Kong subsidiaries of mainland fund managers to invest back into the onshore securities market.

The four funds were an RMB Bondplus fund by China Universal AM Hong Kong; a Shen Zhou RMB fund by CSOP Asset Management; an RMB fixed income fund from Da Cheng International AM; and a Great Dragon China Fixed Income Fund from Guotai Junan Assets (Asia).

Also on the final trading day of last year, China’s State Administration of Foreign Exchange (Safe) granted its first batch of investment quotas totalling Rmb10.7 billion ($1.7 billion) to 10 RQFII licence holders, including eight FMCs and two securities firms.

China AMC Hong Kong received the largest quota at Rmb1.2 billion. Meanwhile, Rmb1.1 billion each was granted to Harvest Global Investors, Da Cheng International, China Universal AM, CSOP Asset Management, HFT Investment Management Hong Kong, Bosera International and Hua An AM; and securities firms Shenyin Wanguo Hong Kong and Essence International Financial Holdings each received Rmb900 million.

Given that the initial RQFII investment quota was set at Rmb20 billion, Safe will continue to process applications from other firms which were granted an RQFII licence from the China Securities Regulatory Commission on December 22.

To date, nine FMCs and 12 securities firms have been awarded RQFII licences; apart from those mentioned above, they are E Fund, Guoyuan Securities, Citic Securities, Merchant Securities, Guangfa Holdings, Haitong International, Guotai Junan Financial Holdings, Huatai Financial Holdings, Everbright Securities, Guosen Securities and CICC Hong Kong.

Unlike the qualified foreign institutional investor (QFII) programme, which allows investors access to China’s relatively small bond market and provides monthly liquidity, the RQFII scheme can tap the country’s interbank bond market and also allows investor subscriptions and redemptions on a daily basis.

The first batch of RQFII funds will invest solely in the onshore securities market, with at least 80% in the interbank and exchange bond market and no more than 20% in stocks listed in Shanghai and Shenzhen.

Wang Jin, managing director of CSOP Asset Management, tells AsianInvestor: “The RQFII product feature is very similar to the domestic fixed income fund. As the interest rate in China is higher than that in Hong Kong, we think the RQFII fund will be very popular among Hong Kong investors.”

Most Chinese fund houses are seeking to create an RQFII product as one of their flagship mutual funds in Hong Kong and have been investing heavily to overhaul their research and investment capabilities or leverage on their parents’ onshore resources.

China Southern Fund, CSOP’s parent, which has been managing an onshore RMB bond fund since 2002, will help its Hong Kong subsidiary to manage its RQFII fund, for example.

Wang points out that China Southern Fund has an independent research and investment team and an internal credit rating team dedicated to the domestic fixed income market.

China Universal, meanwhile, has two portfolio managers for its new RMB Bondplus Fund, with one focusing on fixed income and the other on equity investment.

Other licence-holders known to have submitted applications for RQFII mutual funds to the SFC include Hua An, Bosera and HFT Investment Management.