Chinese investors who have cash still sitting in money market funds are looking for ways to diversify their assets via Hong Kong’s Mutual Recognition of Funds (MRF) scheme.
This is according to Pictet Asset Management’s Freeman Tsang, head of intermediaries for Asia ex Japan.
Since Pictet’s asset management division set out to capture investors under the MRF scheme, it hadn’t seen much demand from Chinese investors.
However, since the end of last year, Tsang said the number of distributors in China who have contacted the Swiss firm has increased sevenfold – although he did note this was from a small base.
He suspects that the big jump in inquires is due to many mainland distributors having already filled their allocated outbound investment quotas, causing them to look for alternative routes such as through Hong Kong domiciled funds under the MRF.
Under the scheme, eligible Chinese mainland and Hong Kong funds can be distributed in both markets through a streamlined vetting process by the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC).
“A lot of people in China want to diversify to global investments,” Tsang told FSA in an interview.
“This desire for diversification from mainland Chinese investors is a theme that we expect to continue to see over the next few years, and we intend to capture that.”
Indeed, many Chinese investors with a home bias have endured a multi-year bear market in the local equity market.
This has been made worse by a property market decline which has dealt a damaging blow to many savers who used property as an investment vehicle.
Meanwhile, global equity markets have rebounded strongly after the inflationary shocks of 2022 with notable outperformance in markets such as the US, Japan and India.
Based on his discussions with Chinese investors, Tsang seems confident that there will be more demand from Chinese investors for Hong Kong funds under the MRF scheme in the coming years.
“No other market can replicate”
“We believe that Hong Kong is benefitting from the door opening to China,” he said. “This is one thing that no other financial centre can replicate, this is only benefitting Hong Kong.”
“There is a lot of room to grow for the Hong Kong fund industry and if you want to capture the potential, offshore in Luxemburg is one way, but having a local presence in Hong Kong is another way.”
“If you believe China is going to continue opening and perceive Hong Kong as an asset management hub for the mainland and the world, this is an opportunity that a lot of other fund houses are missing out on.”
Tsang’s comments come as a lot of asset managers have been trimming their Hong Kong and China investment teams amid declining local equity markets and rising geopolitical tensions.
However, Pictet Asset Management has been gradually adding resources to their investment team to capture the opportunity.
The firm recently appointed a new investment manager to its multi-asset team based in Hong Kong and has increased their sales headcount by 20% over the past three years, Tsang said.
“As a privately-owned Swiss firm, we can follow more long-term thinking when it comes to strategic development in China despite rising geopolitical tensions,” he said.
Tsang said he is already seeing early stages of existing clients in Asia shifting cash from money market funds to various fixed income and equity investments.
“Lots of investors are trying to lock in yields in anticipation of a peak in the Fed funds rate,” he said. “We see cash moving to US IG credit, but global credit is getting more interest from clients.”
“We are starting to see some clients want to take a bit of equity risk but don’t want to take full risk and so they may use multi asset products to capture some of the momentum.”
