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China halts approvals for HK equity funds

China halts approvals for HK equity funds

China’s securities regulator is suspending approvals of some of the new mutual funds investing in Hong Kong-listed stocks through the southbound Stock Connect programme.

New funds with ‘Hong Kong’ in their names that allocate at least 80% of their non-cash assets portfolio to Hong Kong-listed stocks are now being suspended by the Chinese Securities Regulatory Commission (CSRC).

Going forward CSRC will only approve funds that allocate less than 50% of their portfolio.

Two Chinese asset managers confirmed that their new funds preparing to invest in Hong Kong-listed stocks have already been temporarily suspended by the CSRC, local media China Fund reported.

Currently, the number of onshore asset managers applying for new fund approvals with ‘Hong Kong’ in their names has reached 59 this year, data from the CSRC showed.

‘The Chinese government is always concerned about the money flowing out [of the country] and that’s the number one reason [for this measure],’ said Elizabeth Soon, small cap equity fund manager at PineBridge Investments.

‘Number two is speculation, in relation to what happened. I wouldn’t take that as a sign to say sell the market or buy the market, because obviously all of that is related to valuations.’ she told Citywire Asia.

The Chinese government also wants to send a signal that the country is very much looking into reducing the risk of such fund products and reducing the possibility of things getting out of control, which will be a big issue in China, added Karine Hirn, partner at East Capital.

As for the impact on the Stock Connect scheme, Hirn said she is convinced that it has made a good contribution towards China market’s opening up and will not hinder its further development.

‘The regulator is now taking stock of this trend. However, since there is no indication on the timeframe of this ban, it seems the policy would only impact new fund launches, while not the existing ones,’ an asset manager, who requested anonymity said.

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