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Northbound MRF fund sales set record in July

The four Hong Kong-domiciled funds selling in the mainland through the Mutual Recognition of Funds scheme drew RMB 1.1bn ($166m) of net sales in July, the highest since the sales started at the beginning of the year, according to the latest data from State Administration of Foreign Exchange.

By comparison, each month for the last three months, net inflow was roughly RMB 700m.

Z-ben Advisors estimated that more than 80% of the net sales in July went to JP Morgan’s two funds, notably its Asian Total Income Bond fund.

It also said that this particular bond fund grabbed $520m (RMB 3.46bn) year-to-date net sales, which accounted for nearly 90% of the overall northbound net inflow.

“In a world of compressed bond yields and a domestic Chinese market saturated with Greater China equity QDII funds, it’s no surprise that [this fund] is growing at an increasing pace and accounts for the majority of northbound net flows,” the China-focus advisor explained in a recent report.

The rest of the three MRF funds are JPMorgan Pacific Securities Fund, Hang Seng China H-Share Index Fund, and Zeal Voyage China Fund. The latter two are China focused.

Nonetheless, the BOCHK All Weather China High Yield Bond Fund joined the race and began sales on August 12 after being approved in April.

However, a dozen funds, including those from Amundi, BEA Union Investment, Schroders and HSBC Asset Management, have been waiting in the pipeline for a year already, pending approval by the China Securities Regulatory Commission.

“The current outbound state of play is less than ideal,” Z-ben said.

The issuance of new quota for QDII, or Qualified Domestic Institutional Investor scheme, which allows onshore money to invest overseas, was stopped in March 2015 due to concern over capital outflows and the subsequent effect on the RMB currency.

Still, a QDII Greater China-focused bond product offered by China Asset Management last month saw fundraising complete in just one day, indicating the robust demand for mainland investors for overseas diversification.

Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said the biggest risk for China is that structural reforms remain staggered, or slower than expected, which might trigger even more capital outflows and currency depreciation.

Part of the Mark Allen Group.