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MRF capital flowing north

Sales of northbound mutual funds sold through the Mutual Recognition of Funds scheme are surging compared to southbound sales, which are another story.

Overall net sales of the six northbound (Hong Kong-domiciled) MRF funds reached RMB 720m ($111.2m) in the first quarter of this year, 15 times higher than southbound funds selling in Hong Kong, which totaled only RMB 44.6m.

Turning to monthly net sales, northbound products have shown a marked improvement in 2016. For the month of March, the four Hong Kong-domiciled funds hit RMB 522.3m, up 2.3 times from the previous month (RMB 157.6m), according to the latest data from State Administration of Foreign Exchange. In January, the sales figure was RMB 40.2m.

Although the size is still relatively small, the growth has remained strong after the scheme was launched at the end of last year. By comparison, the overall mutual fund market in onshore China has increased at a much slower pace, with assets under management up by RMB 69.1bn, or 0.9% in March compared to February.

As of today, six northbound funds are approved for sale and four are actually selling.

Southbound, around a dozen of the 35 approved mainland-domiciled funds have started selling in the SAR. Huatai-PineBridge Active Growth Mixed Securities Investment Fund, as well as UBS SDIC Stable Income Bond Securities Investment Fund have just been approved earlier this week.

Southbound slowdown

On the southbound side, sales continued to shrink since the beginning of the year. Net sales of mainland funds selling in Hong Kong were RMB 7.44m in March compared to RMB 15.6m in February and RMB 21.5m in January.

Commenting on the slower southbound sales, Morningstar China director of manager research Rachel Wang said overseas investors are likely taking the time to understand the China market in order to deal with the risks of one-country fund.

The northbound sales are stronger because of rising mainland investor demand for overseas asset allocation, which Hong Kong-domiciled funds can provide. In particular, overseas bond funds have been attractive.

“Investors are looking for assets with higher liquidity and less risks after the volatile A-shares market and falling yuan last year.”

Some investors might also turn to MRF bond funds because many investment quotas under China’s qualified domestic institutional investor programme (which allows RMB investment in offshore products) have been fully used, she added.

However, if China’s A-share market picks up, Wang said mainland investors may be more willing to put their money back into domestic markets.

Part of the Mark Allen Group.