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Outflows continue for northbound MRF products

April marked five consecutive months of net outflows for Hong Kong-domiciled funds sold in China through the Mutual Recognition of Funds (MRF) scheme, according to the latest data from the State Administration of Foreign Exchange (SAFE).

In April, the monthly net outflow for northbound funds (Hong Kong-domiciled funds available for sale to domestic mainland investors) was RMB 268.03m ($41.77m). The funds have now lost assets for five consecutive months, data from SAFE shows.

According to the data, sales began declining after the funds collectively gathered RMB 2.08bn of new assets within the single month of September last year. Since December, they have had, collectively, only net outflows.

Commenting on the scheme, Miranda Mou, head of China intermediary business at JP Morgan Asset Management, told FSA that a limited choice of northbound funds has been a consistent challenge.

The small number of product offerings has constrained the potential of the scheme since it launched in 2016, she said.

As of mid-May, there are a total of 14 regulator-approved northbound funds. About seven of them are available for sale.

The total assets gathered in the scheme shrank to RMB 11.46bn ($1.79bn) at the end of April from its peak of RMB 12.46bn in November 2017.


MRF monthly net sales (RMB)

Northbound Southbound
 January -116.2 62.1
 February -522.7 32.4
March -97.1 -28.6
 April -268.0 17.7
Average net sales in 2017 390.66 19.99
Total net sales since January 2016  11,724.3  402.0
Source: SAFE

Poor sales performance during the recent months do not stop asset managers from filing more applications to obtain the approval to distribute their Hong Kong-domiciled funds on the mainland.

As of 18 May, there are eight pending MRF applications, half of which were filed by Haitong International Asset Management, the subsidiary of the Hong-Kong listed Haitong International Securities.

JP Morgan AM intends to add the Asia Dividend Fund and the Global Bond Fund to the firm’s MRF offerings.

Choosing to sell more fixed income funds in China, JPMAM’s Mou believes the volatility in China’s onshore stock market prompts investors to diversify their investments beyond equities.

“We have observed that many investors in China typically prefer a lower volatility strategy when first expanding their portfolios into overseas investments. This has indeed led to an appetite among investors for exposure to fixed income,” she explained.

Moreover, HSBC Global AM applied for the HSBC Asia Pacific ex-Japan Equity Volatility Focused Fund while Value Partners filed for its flagship Classic Fund, according to SAFE records.

The regulator has completed processing all applications filed in 2015. It has granted approvals to three Hong Kong equity funds of both active and passive strategies. Amundi’s global equity product, the Amundi Growth Fund also obtained an approval to sell on the mainland in May.


List of approved northbound funds

Source: FSA

Part of the Mark Allen Group.