Most Hong Kong funds sold to Chinese investors through Wealth Management Connect will be in yuan, industry players say

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Hong Kong-based asset management companies will introduce more yuan share class funds to meet demand from mainland Chinese investors when the Wealth Management Connect scheme is launched, industry body Hong Kong Investment Funds Association (HKIFA) said on Wednesday.

Such funds invest in US and other international stock and bond markets and allow investors to buy and sell their holdings in the yuan. Fund managers use forward and other derivative products to hedge currency risks for investors. Hong Kong has allowed yuan share class funds for locally domiciled funds since 2013, and for overseas funds since 2018.

“Over 90 per cent of fund products to be sold to mainland investors through the Wealth Management Connect will have yuan share class funds. It is a natural development, as these investors would not like to face currency risks,” said Nelson Chow, the HKIFA’s chairman.

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Such funds are already popular in Hong Kong, thanks to an increasing number of mainland Chinese investors putting their money into the city’s stock market. The number of yuan share class funds has risen from 191 in 2018 to 295 in June this year, and represent about 14 per cent of the total funds authorised by Hong Kong’s Securities and Futures Commission.

“Most mainland investors will ask if a fund product has a yuan share class before they invest in it. As such, it would be hard to sell to mainland investors if the fund products do not have this,” said Arnold Chow, deputy general manager for personal digital banking products at Bank of China (Hong Kong) (BOCHK).

From left, Sally Wong, CEO, and Nelson Chow, chairman, both of the HKIFA, and Arnold Chow, deputy general manager for personal digital banking products at Bank of China (Hong Kong). Photo: Enoch Yiu alt=From left, Sally Wong, CEO, and Nelson Chow, chairman, both of the HKIFA, and Arnold Chow, deputy general manager for personal digital banking products at Bank of China (Hong Kong). Photo: Enoch Yiu

Most mainland Chinese investors will want to invest in funds and other investment products in the yuan, Chow said. He added that BOCHK will work with its parent, Bank of China, and use their more than 1,100 branches in the Greater Bay Area to sell such products through the Wealth Management Connect.

The development of such funds points to the increasing importance of the yuan as a currency used for investments, even though it is not yet fully convertible. Hong Kong, which has the largest pool of offshore yuan deposits at more than 820 billion yuan (US$126.85 billion) as of the end of June, is going to play a bigger role in the internationalisation of the yuan after the Wealth Management Connect is launched.

“The demand for yuan share class funds will increase substantially after the introduction of the Wealth Management Connect, which will be a key driver boosting the city’s role as an international yuan trading centre,” said HKIFA’s Chow.

Most mainland Chinese investors will want to invest in funds and other investment products in the yuan. Photo: Bloomberg alt=Most mainland Chinese investors will want to invest in funds and other investment products in the yuan. Photo: Bloomberg

The new connect scheme, unveiled by Beijing a year ago, will allow Hong Kong and Macau residents to buy mainland Chinese investment products sold by banks in the Greater Bay Area. Similarly, residents of the nine cities in China’s southern Guangdong province that are included in this economic cluster will be allowed to buy investment products sold by banks in the two special administrative regions.

Carrie Lam Cheng Yuet-ngor, Hong Kong’s leader, said in July that the scheme will be rolled out soon. Authorities on both sides of the border have set an aggregate quota of 300 billion yuan for fund movements in both directions. Individual investors will be allowed to invest up to one million yuan.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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