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Exposure of mainland China’s fund managers to Hong Kong sharply rose, as fund assets grew by almost half in 2009

Thursday, July 29, 2010
Opalesque Industry Update – The annual Fund Management Activities Survey (FMAS) commissioned by Hong Kong’s Securities and Futures Commission (SFC) showed that fund managers from mainland China had expanded their fund advisory portfolios to Hong Kong by 70.1% to HK$154.7bn (US$19.92bn) in 2009.

The survey added that the number of mainland companies managing SFC-authorized funds jumped from only two in 2008, to eight as of end June 2010, while the number of funds they manage rose by almost half from 46 in 2008 to 65.

“The asset management industry in Hong Kong has proven its mettle in 2009. As other major markets around the world continue with their financial market reforms, we must work together with the industry to make sure that Hong Kong continues to be a quality market and a platform of choice,” said Alexa Lam, the SFC’s Deputy Chief Executive Officer and Executive Director of Policy, China and Investment Products.

The result of the survey, which was released on Tuesday, revealed that funds under management in Hong Kong recorded a sharp rebound last year when it reached HK$8.51tln (US$1.1tln), representing an increase of 45.4% from 2008’s HK$5.85tln (US$753m).

According to FMAS, the result of the survey is an indication that international investors remain confident in Hong Kong and sees the island as a platform for investing in the region. Overseas investors contributed HK$5.388tln (US$694m or 63.9%) to fund management businesses, excluding real estate investment trusts (REITs).

However, newswire Asian Investor reported that despite the rise in Hong Kong’s fund under management last year, the figure was still below the HK$9.36tln (US$1.205tln) pre-crisis level in 2007.

Asian Investor also forecasted an increase in China-related fund-management activities in Hong Kong.

Key findings of the SFC survey
The key findings of the report were: * Licensed asset management and fund advisory houses continued to contribute the largest proportion of the combined asset management business, recording the biggest year-on-year increase of 50.3% in the value of their aggregate asset management and fund advisory businesses to HK$6.447tln (US$833.9bn) in 2009;
* Registered institutions recorded a 29.8% increase in their aggregate asset management and other private banking businesses to HK$1.811tln (US$233.16bn) in 2009; and
* Insurance companies reported a 44.6% increase in their assets under management to HK$175bn (US$22.5bn) in 2009.

Remnibi-dominated fund products to be launched
At the same time, SFC’s Lam welcomed the signing last week of the Supplementary Memorandum of Cooperation on the expansion of the RMB trade settlement scheme between the Hong Kong Monetary Authority and the People’s Bank of China that will facilitate inter-account renminbi transfers.

Lam said the move would pave the way for the launch of RMB-denominated fund products. She stated: "The SFC will continue to work closely with the industry with a view towards achieving breakthroughs in this area. Product innovation has always been Hong Kong’s forte. We also will develop deeper ties with the financial regulators and central government agencies on the Mainland to contribute to further financial co-operation between the Mainland and Hong Kong markets.”

Hong Kong ETFs on the rise too
FMAS also noted the continued growth of Hong Kong’s exchange-traded-fund (ETFs) and the first-time cross-listing of ETFs in Hong Kong and Taiwan. As at the end of June 2010, 62 ETFs were listed in Hong Kong. The trading volume of the ETFs increased by 12.5% year-on-year to an average daily turnover of HK$1.966bn (US$253m) in the first half of 2010 while market capitalization (which excludes the gold ETF) rose 29.7% to HK$180bn (US$23.2bn) in the same period, making it the second largest ETF market in Asia in terms of turnover and market cap.

According to Asian Investor, the average daily ETF turnover now accounts for 3.2% of the total average daily turnover of the Hong Kong stock market, up from 2.5% in 2008.

‘Dr. Wise’ warns investors against jumping into ETFs
Meanwhile, Dr. Wise, a fictional character created by the SFC and who writes a monthly column in the SFC’s InvestED website, has advised investors against quickly including ETFs into their portfolios, saying not all ETFs track market performance directly.

Dr. Wise, through his column entitled “Synthetic Exchange-traded Funds: What Does it Do for You?”, reminds investors to look carefully at the “synthetic” nature of ETFs.

“Some investments are not as straightforward as you think. Until you thoroughly understand the setup of an investment product, do not make a commitment,” he said.
- Komfie Manalo

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