Northbound fund inflows set another high

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Hong Kong-domiciled products sold in the mainland (northbound funds) continue to gather assets.

Net sales for northbound funds sold under the Hong Kong-mainland Mutual Recognition of Funds (MRF) scheme reached a record high of RMB 16.66bn ($2.37bn) as of the end of September, the highest since the programme started in 2015, according to latest records from the State Administration of Foreign Exchange (Safe).

The latest net flows figure of RMB 803m beats the previous record of RMB 466m in August.

Northbound funds had positive flows for nine consecutive months this year, with year-to-date net inflows of RMB 7.64bn.

It represents a huge turnaround from when investors redeemed a total of RMB 4.73bn between December 2017 and January 2019.

Yoon Ng, director for Asia-Pacific insights at Broadridge Financial, said earlier that there has been an increase in outbound investments from Chinese investors due to rising concerns about the US-China trade war and the slowing domestic economy.

However, on the other side, investors in Hong Kong are facing headwinds. Deteriorating geopolitical and economic trends as well as volatile markets have engendered a pessimistic outlook among most industry practitioners, according to a recent report from the Private Wealth Management Association of Hong Kong and KPMG.

The report forecast 5%-10% annualised assets under management growth over the next five years, down from 10%-20% in last year’s survey.

Meanwhile, the number of high-net-worth individuals (people with more than $1m in investable assets) in Hong Kong dropped 10% from the previous year and the number of billionaires fell 6%, FSA previously reported.

                 Northbound fund flows

Monthly figure in RMBTotal assets in RMB (as of the end of the month)
December 2017 – January 2019 (14 consecutive months of net outflows)(4.73bn)
February 2019 75.5m 8.22bn
March 20191.34bn 9.55bn
April 2019 976.3m 10.53bn
May 2019 969.7m 11.50bn
June 2019 1.45bn 12.95bn
July 2019 2.45bn 15.39bn
August 2019 466m 15.86bn
September 2019 803m 16.66bn
YTD total net inflows 7.64bn
Net inflows since the programme started 16.62bn
Source: Safe

In total, there are 14 northbound funds under the MRF scheme and 13 more products that are still waiting to be approved, with Pictet Asset Management being the latest to lodge an MRF application with the Chinese securities regulator.

Southbound funds

On the other hand, southbound funds – mainland-domiciled funds sold in Hong Kong, had net outflows of RMB 10m in September, with a drop of RMB 10m compared with the previous month’s performance. This year, redemptions totalled RMB 161.7m.

Southbound fund flows

Monthly figure in RMBTotal assets in RMB (as of the end of the month)
2017 total inflows 239.83m
2018 total inflows 96.55m
January 2019(3.47m) 429.16m
February 2019 6.01m 435.18m
March 2019 12.14m 447.32m
April 2019(79m) 368.32m
May 2019(39m) 328.62m
June 2019(28m) 299.96m
July 2019 2m 302.01m
August 2019(20m) 281.50m
September 2019(10m) 270.93m
YTD outflows161.7m
Source: Safe

Since the MRF scheme started in 2015, the demand for southbound products has been weak, with total net inflows of RMB 249.4m, which is small compared to the much stronger northbound inflows of RMB 16.62bn.

Broadridge’s Ng also said that southbound sales will likely remain muted as Hong Kong investors already have other existing options to have a China play without going through the MRF route.

The Securities and Futures Commission has approved around 50-domiciled funds to be sold in Hong Kong. However, only two dozen funds have been made available for sale to investors.


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