Manual processes on Hong Kong fund dealing desks, which often rely on faxes, may delay funds' entry to mainland China under mutual fund recognition, which opens for registration tomorrow, July 1.
In contrast, China's funds industry is almost all automated under the infrastructure of the China Securities Regulatory Commission (CSRC), which should mean Chinese funds are ready to enter Hong Kong without technical barriers.
"The funds dealing departments in China don't use faxes any more," Sebastien Chaker, head of Asia for Calastone, tells Funds Global Asia. "The big difference is the Chinese asset management industry is relatively new, having been around less than 15 years, and they built it immediately with an electronic platform."
Chaker estimates it will take about a month for the first funds to gain approval under the mutual recognition scheme. Transfer agents, custodians and operations staff in Hong Kong have until then to find a way to send and receive fund orders to or from China, or risk delaying the entry of Hong Kong funds to the mainland market under the scheme. Delays could strike a blow to asset managers hoping for a competitive advantage by being early in the market.
"Could this prevent the first flows to go live? Possibly," says Chaker. "Our assumption is that faxes won't be an option from day one."
Chaker's warning comes as research firm Cerulli Associates predicts Chinese asset managers will benefit more from mutual fund recognition than their peers in Hong Kong.
Cerulli Associates found that all 20 of the Chinese mainland asset managers with the most qualifying funds under the scheme had a Hong Kong subsidiary, a foreign partner in Hong Kong, or both. A presence in Hong Kong means these players should find it straightforward to distribute new funds there.
In contrast, foreign joint ventures in China, including the ventures of Hong Kong-based asset managers, "have struggled to consistently provide products and investment strategies that capture the interest of Chinese investors amid a very challenging distribution landscape", says the research firm in a statement.
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