Hong Kong’s Securities and Futures Commission (SFC) and Thailand’s Securities and Exchange Commission (SEC) are expected to sign a memorandum of understanding to set up a mutual recognition of funds (MRF) scheme in the second quarter, according to a statement from the Thai regulator.
When launched, plain vanilla funds and ETFs in both markets are permitted to join the MRF scheme during its preliminary stage.
The plans come after the SEC had a meeting with the SFC, the Hong Kong Exchange and the SAR’s Financial Services and Treasury Bureau last week.
In line with the MRF plan, the SEC will be arranging meetings with Thai asset management firms, Hong Kong regulators and distributors in the SAR to explore cross-border opportunities and build mutual understanding in the matter, Ruendavee Suwanmongkol, SEC’s secretary-general, said in the statement.
The SEC is also cooperating with Thailand’s revenue department to solve tax-related issues to create a level-playing field for industry players of both jurisdictions.
Positive for China funds in Hong Kong
The development should be positive for Thai investors who are seeking exposure to China’s equity markets, especially given that a number of funds in Hong Kong are able to access the mainland market through the Hong Kong-China Stock Connect, Pakorn Peetathawatchai, Stock Exchange of Thailand’s president, said in a Bangkok Post report.
According to the report, only 10 mutual funds in Thailand offer exposure to the Chinese market.
As of the end of December, China equity fund assets in Thailand amounted to around THB 40bn ($1.31bn), according to a Morningstar report.
The majority of the products are feeder funds. The only way that Thai fund managers can directly invest in Chinese securities is by obtaining a qualified foreign institutional investor (QFII) or its remninbi equivalent, RQFII, licence.
Only two Thai firms are RQFII licence holders — Kasikorn Asset Management and BBL Asset Management, according to data from China’s State Administration of Foreign Exchange (SAFE). Only Bank of Thailand and the country’s Government Pension Fund are holders of the QFII licence.
Other cross-border schemes
Both Thailand and Hong Kong are already involved in other cross-border mutual fund schemes.
Thailand is part of the Asean Collective Investment Scheme (CIS), which connects the country’s fund market with Singapore and Malaysia.
However, although it was launched in 2014, the programme has not gained traction, with only seven fund managers joining. The challenges include lack of interest, as fund managers prefer the feeder fund route, as well as the difficulty of getting authorisation for a fund to be sold under the scheme.
Thailand is also part of the Asia Regional Fund Passporting Scheme, together with Australia, Japan, Korea and New Zealand. The scheme went live in February and received its first fund application from a New Zealand manager in November.
Meanwhile, Hong Kong has focused more on bilateral cross-border fund agreements. Besides the Hong Kong-China MRF, which was launched in 2015, the SAR has other MRF agreements with Luxembourg, France, Switzerland and the UK.
