Posted inNews

Record net outflows for northbound MRF

During the market plunge in February, northbound products sold through the China-Hong Kong Mutual Recognition of Funds (MRF) scheme hit record net outflows, according to data from the State Administration of Foreign Exchange (SAFE).
Record net outflows for northbound MRF
Dropped ice cream

The scheme, launched in 2016, allows cross-border trading of registered funds between the mainland and the SAR.

Northbound funds (Hong Kong-domiciled funds sold on the mainland) recorded net outflows of RMB 522.7m ($82.9m) in February, the largest since the inception of the programme.

The February figure represents six consecutive months of decline in monthly net sales for northbound products.

Sales began declining after the funds collectively gathered RMB 2.08bn of new assets within the single month of September last year. Net outflows have been widening for three months in a row, despite a small pick-up in January.

However, northbound sales as a whole have been far stronger than southbound (mainland funds for sale in Hong Kong) since the programme’s inception. In terms of net inflows, northbound funds are about 26x bigger than southbound.

Rex Lo, BEA Union Investment’s managing director for business development, told FSA in an earlier interview that the drop in MRF sales may be due to the appreciation in China’s currency in the second half of the year. In the first quarter of 2018, renminbi continued to strengthen and saw the largest quarterly appreciation against dollar in a decade. Given the currency difference, domestic investor demand for US dollar-denominated products would decline.

The volatility in global stock markets also negatively impact cross-border sales. Hong Kong’s equity market, for instance, in January soared and broke the previous record set in 2007 only to fall as concerns over a China-US trade war emerged later in the first quarter.

Lengthy fund approval

Regulatory approval for northbound funds to sell to China’s domestic investors has slowed. The latest permission was given to BEA Union Investment Management for its Asian Bond and Currency Fund and Asia Pacific Multi Income Fund.

The review by the China Securities Regulatory Commission (CSRC) took approximately 2.5 years in both cases.

To date, there are still nine other pending applications for northbound fund distribution under the MRF scheme. They were filed as early as July 2015, according to CSRC’s records on 23 March.

The most recent application was submitted by JPMorgan Funds (Asia) for its Global Bond Opportunities Fund (MRF), on 15 December 2017. The records show that it is the only new application made since September 2016.

Source: SAFE


The list of MRF-approved northbound funds

Zeal Voyage China Fund

JPMorgan Asian Total Return Bond fund

Hang Seng China H-Share Index Fund

JPMorgan Pacific Securities Fund

BOCHK All Weather China High Yield Bond Fund

Schroders Asian Asset Income Fund

Amundi HK New Generation Asia Pacific Equity Dividend Fund

BOCI-Prudential BOCHK Global Equity Fund

BEA Union Investment Asian Bond and Currency Fund

BEA Union Investment Asia Pacific Multi Income Fund

Source: FSA

Part of the Mark Allen Group.