While several large banks are keen to capture growth opportunities through the long-awaited GBA WMC scheme, many fund managers are neutral and adopting a wait-and-see approach, Cerulli Associates, the Boston based consulting firm, said in a research report.
On 10 September, China officially rolled out the GBA WMC, a cross-border investment scheme offering financial products in nine mainland cities in the Guangdong province, and the two Special Administrative Regions (SARs) of Hong Kong and Macao.
“Despite the immense opportunities available, [we] do not expect huge capital flows in the early phase of the GBA WMC. This is because regulators, especially those on the mainland, are concerned about investor protection and capital flow control” said Ye Kangting, senior analyst at Cerulli..
Many mainland fund managers Cerulli spoke with are adopting a cautious approach, as the similar Mutual Recognition of Funds (MRF) programme between the mainland and Hong Kong has failed to generate significant fund sales.
They believe there could be a mismatch between investor demand for high-risk and high-return products, and available product supply.
Other fund managers intend to sell money market and low-risk fixed-income funds to offshore investors, as mainland returns are slightly higher than those offshore. Some also expect more outsourcing mandates from banks’ wealth management subsidiaries, allowing managers to engage in the GBA WMC indirectly.
Northbound optimism
On the other hand, Hong Kong managers Cerulli spoke with seem to be more optimistic about tapping the GBA market. A few global fund houses have added renminbi share classes to non-renminbi denominated funds in Hong Kong for subsequent product launches.
However, some Hong Kong managers also see a possible misalignment between the low- to medium-risk products offered by the scheme and what investors demand. Although plain-vanilla products are less attractive to mainland investors in the low interest environment, managers understand that regulators want to roll out the scheme in a controlled manner.
“Nevertheless, fund managers who want to take part in the GBA WMC should understand investors’ product preferences well, deepen their collaborations with both onshore and offshore distribution banks, and enhance their brands by building or leveraging on strong research and investment capabilities, in order to stand out from the competition,” Ye said.
Similar to other well-established mainland-Hong Kong investment links, such as the MRF scheme, the GBA WMC has two components. Under the southbound route, mainland residents can invest in eligible investment products distributed by banks in Hong Kong and Macau by opening designated investment accounts with these banks.
Eligible southbound products cover Hong Kong-domiciled funds authorised by the Securities and Futures Commission, bonds, and certain deposits, which also need to be assessed by distributing banks as low- to medium-risk rated “non-complex” products.
Under the northbound route, residents of Hong Kong and Macao can open accounts with mainland banks to access onshore financial products. Eligible northbound products offered by mainland producers cover mutual funds as well as fixed-income and equity banks’ wealth management products, both with low- to medium-risk ratings.
The first batch of product launches can be expected in mid-October, at the earliest, with many large banks present in the nine Guangdong cities and the two SARs actively pouring in resources as they prepare to participate in the GBA WMC, according to Cerulli.
