Sharp slowdown in MRF sales, imbalance increases

Hong Kong funds selling in the mainland (northbound) through the Mutual Recognition of Funds scheme had the lowest net inflow in nine months, according to the latest data from the State Administration of Foreign Exchange.

In October, northbound funds for onshore investors recorded net sales of RMB 94.4m ($13.7m) compared to RMB 561.6m ($82.8m) in September and August’s peak at RMB 3.95bn ($593m).

The main reason is the voluntary subscription cap imposed on the JPMorgan Asian Total Return Bond Fund starting in late August.

“At the moment there isn’t much demand for products other than JP Morgan’s fund. The subscription cap for that bond fund has directly impacted MRF fundraising,” said Z-Ben Advisors director of operations Chantal Grinderslev.

So far five Hong Kong-domiciled funds are selling to onshore investors via the scheme. Only the above JP Morgan fund and BOCHK All Weather China High Yield Bond Fund are fixed income-focus. The others are equity products.

Grinderslev added that the BOCHK fund “is only being distributed through the bank, and it may be too early to tell how much distribution support that product is getting”.

To compare, JP Morgan is distributing its products through foreign banks, domestic banks and online channels, with support from its onshore joint-venture CIFM Asset Management, Z-Ben noted.

In the opposite direction, flows turned negative as the disparity between north and southbound grew. Southbound flows (China funds sold in Hong Kong) saw a net monthly outflow for the first time in October, possibly due to the persistent depreciation of the yuan.

Fund managers also expected the Monday launch of the Shenzhen-Hong Kong Stock Connect to benefit more small to mid-cap Hong Kong-listed stocks (H-shares) rather than China listed A-shares.

Source: State Administration of Foreign Exchange