The upcoming Hong Kong-Mainland mutual fund recognition which starts in July and follows the launch of the stock connect programme between Hong Kong and Shanghai could negatively affect the sales of structured products, according to market players.
“[Once] the recognition [is in place], funds will be a strong competitor to structured products,” said Vincent Yeung, deputy general manager at China Merchants Bank in China. “At the moment, investors have limited access to funds outside of the Mainland, so they’ll purchase structured products linked to offshore funds instead, but this situation will change once the recognition is launched.”
From July 1, investors will be able to purchase qualified funds that are larger than CNY200m (US$32m) and more than one-year old that are registered in both markets. General equity, bond, mixed, unlisted index and physical index-tracking exchange-traded funds that are not primarily invested in each other’s market would be eligible under the scheme.
There are 850 and 100 funds qualified under the scheme registered in Hong Kong and China, respectively, according to the Hong Kong Securities and Futures Commission (SFC).
The launch of the mutual fund recognition scheme will help promote investor education, said Yeung. “Structured products [offer] capital protection most of the time, while when investing in funds, investors will need to bear a bigger risk,” said Yeung. “The introduction of more investments in the market will help investors to develop a comprehensive view and learn what kinds of investments fit better for them, which, indirectly, grow the pie bigger for structured products.”
There is little opportunity for these funds to be linked to structured products as investors can subscribe to the funds directly, said Andrew Fung, head of global banking and markets at Hang Seng Bank in Hong Kong.
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