China is next market for managers

China is emerging as one of the biggest opportunities for fund managers looking to spread beyond their own geographical boundaries.

HSBC Asset Management’s managing director in Hong Kong, Paul Chow, says China’s accession to the World Trading Organisation (WTO), scheduled for some time in the next year, will open up China’s potentially massive investment market to foreign fund managers for the first time.

Chow says the new rules will allow foreign companies to own up to one third of a funds management joint venture with a Chinese company for the three years following China’s accession to the WTO. After three years, the maximum shareholding will rise to 49 per cent.

Chow says China’s investment markets have grown in leaps and bounds in the past couple of years. Its two stock markets, based in Shanghai and Shenzhen, have grown from a standing start ten years ago to become now collectively bigger than the Hong Kong share market.

Not surprisingly, a number of Hong Kong-based fund managers are positioning themselves to exploit the China opportunity. Chow says a number of groups are actively working towards developing open end funds to meet the needs of Chinese investors and conform to Chinese regulations.

Chow says Hong Kong-based managers are also looking to capitalise on Hong Kong’s booming managed funds market which has ballooned from $US 26 million ten years ago to $US 311 billion today — about the same size as Australia’s market.

Hong Kong also recently rolled out its much-vaunted compulsory superannuation system which is likely to increase funds under management even more over the next few years. The so-called MPF scheme was launched last year and has already spawned 51 separate master trusts to manage $22 billion under management. Almost $1 billion a month is flowing into these funds.

The growth of funds such as MPFs has in part driven a concentration of distribution through Hong Kong’s banks. Three years ago, only 14 per cent of funds flow came through bank-based advisers. The figure has since risen to 59 per cent.