Hong Kong-domiciled funds sold in the mainland (northbound funds) via the Hong Kong-China Mutual Recognition of Funds (MRF) scheme had net outflows of RMB 1.77bn ($270m) for the full year 2020, which compares with the net inflows of RMB 7.16bn in 2019, according to the latest data from China’s State Administration of Foreign Exchange.
Launched in 2015, the scheme allows eligible mainland- and Hong Kong-domiciled funds to be distributed in each other’s markets.
Investors in the mainland last year have preferred domestic securities over offshore investments, which explains the outflows from northbound funds, according to Kean Yung Siau, Singapore-based analyst at Cerulli Associates.
“In 2020, China is one of the fastest markets to recover from the Covid-19 pandemic. Hence, investors are more optimistic towards the China market and it could be one of the reasons why northbound funds saw outflows, compared with 2019,” Kean Yung Siau, Singapore-based analyst at Cerulli Associates, told FSA.
While northbound funds had seven consecutive months of outflows since May, the funds had huge net inflows of RMB 409.13m in December, SAFE records show.
“This could be due to the escalating Sino-US tension, which saw President Trump signing an executive order in November that blacklisted some Chinese companies,” Siau said.
“Some investors may have chosen to diversify overseas by investing in northbound funds.”
Northbound funds monthly flows (in RMB)
| Inflows / (outflows) | |
| Jan-20 | (407.1m) |
| Feb-20 | 1.03bn |
| Mar-20 | (1.53bn) |
| Apr-20 | 2.28bn |
| May-20 | (258.8m) |
| Jun-20 | (367.01m) |
| Jul-20 | (1.17bn) |
| Aug-20 | (418.3m) |
| Sep-20 | (760.87m) |
| Oct-20 | (488.29m) |
| Nov-20 | (89.11m) |
| Dec-20 | 409.13m |
| 2020 total net outflows: | 1.77bn |
Since the programme began in 2015, northbound funds had net inflows of RMB 14.42bn, SAFE data shows.
SOUTHBOUND FUNDS
On the flipside, mainland-domiciled funds sold in Hong Kong (southbound funds) had net inflows of RMB 45.22m in 2020, which was a reversal from the net redemptions of RMB 168m seen in 2019, according to SAFE.
Like mainland investors, investors in the SAR were also betting on the China’s domestic market, according to Siau.
“As investors are more optimistic towards the China market, southbound funds had inflows in 2020,” he said.
However, southbound funds have seen three consecutive months of outflows since October.
“It could be also due to the same reason that investors withdrew from southbound funds while waiting for further developments on the Sino-US tension,” Siau said.
Southbound funds monthly flows (in RMB)
| Inflows / (outflows) | |
| Jan-20 | 63.69m |
| Feb-20 | (21.18m) |
| Mar-20 | 16.51m |
| Apr-20 | 2.88m |
| May-20 | 530000 |
| Jun-20 | 2.76m |
| Jul-20 | 68.8m |
| Aug-20 | (1.75m) |
| Sep-20 | 36.16m |
| Oct-20 | (13.79m) |
| Nov-20 | (89.77m) |
| Dec-20 | (19.63m) |
| 2020 total net inflows | 45.22m |
Since the MRF began in 2015, southbound funds had net inflows of RMB 310.4m, SAFE data shows.
