Fidelity, BlackRock target Chinese demand for offshore funds
[HONG KONG] Fidelity International is poised to offer products that attract mainland investors chasing higher returns from overseas funds, according to sources familiar with the matter.
The global asset manager is considering seeking approval for products under the decade-old Mutual Recognition of Funds scheme, said the sources, who asked not to be identified because the matter is private. It also plans to partner with its Chinese mutual fund company for domestic distribution, the sources added. BlackRock is making similar plans, said another source.
A spokesperson for Fidelity International said the company is exploring 'a number of opportunities across asset classes' for the Mutual Recognition of Funds (MRF) programme. BlackRock did not respond to requests for comment.
The moves come as Chinese investors poured tens of billions of US dollars into Hong Kong-based funds after regulators raised their contribution cap from 50 to 80 per cent in January. Started in 2015, the MRF allows cross-border fund investments between mainland China and Hong Kong.
Mainland investors, who have consistently contributed more than Hong Kong buyers, are increasingly drawn to overseas opportunities due to deflationary risks and low bank deposit rates at home. Despite a pickup in private-sector sentiment earlier this year – fuelled by Deepseek's momentum and the easing of policy crackdowns – concerns over the country's long-term growth linger.
In just one month, they poured 96.4 billion yuan (S$17.2 billion) into Hong Kong funds, lifting accumulated flows to nearly half of the 300 billion yuan quota.
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The interest rate gap between China and the US is a key driver for demand in the products, said Rex Lo, managing director at BEA Union Investment, which has four products in the programme. US President Donald Trump's 'Liberation Day' tariffs 'created some noise' in global markets, but mainland investors still want offshore assets, he said.
Two BEA Union Investment products in the programme saw assets surge more than 200 per cent as at May to US$450 million from US$202 million in December of 2024, thanks to strong flows from mainland investors. The firm declined to break down detailed contributions between Hong Kong and mainland investors.
Although the funds are intended for both retail and institutional investors, onshore financial institutions – such as insurers and wealth managers – have been more successful in securing allocations, said the sources. Such an imbalance could draw regulatory scrutiny, they added, as the scheme was originally designed to meet retail buyer demand.
'The strong sales earlier in the year makes the programme attractive for many foreign companies,' said Ivan Shi, director at consultancy Z-Ben Advisors, who added that yuan devaluation pressure could slow down product approvals.
However, mainland investors scaled back in April. They net sold some 22 billion yuan worth of assets from Hong Kong funds, according to the latest data available from the State Administration of Foreign Exchange on May 31.
'The sentiment was surrounded by tariff-driven concerns,' Marco Tang, deputy CEO for Amundi Hong Kong, said when describing the reason for the shift in April.
Tang said Amundi has seen a 40 per cent increase of net inflows from two exiting funds in the programme as at March, following the relaxation of rules. The firm submitted another two funds to qualify for the scheme in October, and seeks to start selling those by mid-2025.
Growth bottlenecks
JPMorgan Asset Management, which runs seven of the roughly 40 products in the programme, saw mainland investors quickly snap up two bond funds in January, prompting the company to close subscriptions.
In addition to regulatory approvals, companies are facing another bottleneck. Currently, only about half of the quota for Hong Kong-based funds has been used, because they are struggling to find enough buyers from the city to contribute at least 20 per cent of money for a product in the programme.
Competition for the fund industry is fierce in Hong Kong, where investors have many choices, a reason why it's been hard to attract local retail interest, said BEA Union Investment's Lo.
Fidelity International is likely to use existing funds already offered under the Hong Kong pension programme, as re-purposing them would be faster than building new ones large enough to meet qualification requirements, the sources familiar said.
Fidelity is planning to start with fixed-income strategies, one of the sources said.
The revised programme also allows companies to appoint fund managers who live outside of Hong Kong, benefiting global firms which usually have much larger teams in Europe and the US.
Mainland investors have access to three other offshore investment programmes. Wealth Management Connect is limited to residents of Guangdong province – home to about 120 million people.
The other two, the Qualified Domestic Institutional Investor (QDII) and Qualified Domestic Limited Partner (QDLP) programmes, have not received fresh quota approvals in the past year. China's top currency regulator said this week it is planning to lift cap flows for QDII. BLOOMBERG
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