HK, China managers anticipate benefits of common fund recognition platform
04 February 2013
News, China, Hong Kong
By Hui Ching-hoo
Market pundits expect the fund industries of China and Hong Kong to benefit from a soon-to-be-launched common fund recognition platform, though the expected increase in new fund launches driven by the scheme hinges on requirements to be set by the Mainland and Hong Kong regulators.
On January 23, Securities & Futures Commission (SFC) Deputy CEO Alexa Lam noted that the regulator is looking to push ahead with the development of cross-border fund operations by introducing a mutual recognition platform between China and Hong Kong.
Sunny Ng, director of research at Morningstar Asia, tells Asia Asset Management that, “This is a very significant and important development for the fund industry in Hong Kong and mainland China. It opens up the door for many international and local fund managers with operations in Hong Kong to distribute their products on the Mainland, while at the same time allowing China fund managers to distribute their funds in Hong Kong.”
“There aren’t yet sufficient details to know what infrastructure might be required to qualify for mutual recognition, but should asset managers need to seek separate approval for each fund they want qualified, the SFC and China Securities Regulatory Commission (CSRC) will clearly need to raise their staff numbers to handle the approval procedure,” he adds.
“Many managers claim that the current fund registration and approval process is already too arduous and lengthy, so if there is a sharp increase in the number of fund launches, appropriate levels of infrastructure would be needed to avoid lengthy fund registration delays.”
Mr. Ng states that the new supply will depend on requirements and restrictions, but he expects the number of new fund launches to be significant given that one of the conditions of mutual recognition is that the funds need to be domiciled in either Hong Kong or the Mainland: “Currently the majority of funds sold in Hong Kong are European-domiciled UCITS qualified funds. Should mutual recognition come to pass, this would give many international fund houses an incentive to set-up Hong Kong-domiciled funds and spur significant activity in the fund administration and custody businesses in the city.”
However, Lipper’s head of Asia Pacific research Xav Feng plays down the prospective gains from the initiative. International fund managers are unlikely to rush to set up Hong Kong-domiciled funds in the short run, he says, expecting only some specific Hong Kong-domiciled funds, such as overseas-focussed funds, to be allowed to sell on the Mainland in the initial stage given the restrictions on Mainland investors investing overseas.
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