Hong Kong Industry Profiles

Overview

• Hong Kong is widely recognised as the leading fund management centre in Asia with the largest concentration of international fund managers.
• As of end-2011, there were 2,501 authorised collective investment scheme, comprising 1,836 unit trusts & mutual funds, 254 investment-linked assurance schemes, 16 paper gold schemes, 9 REITs and 386 pension/MPF related funds.
• The ETF market in Hong Kong has demonstrated remarkable growth in recent years. As of end-2011, there were 77 ETFs listed in Hong Kong, with 8 added to the list in the year.
• In February 2012, Hang Seng RMB Gold ETF, the first RMB ETF in Hong Kong, was listed on the Hong Kong Exchanges (HKEx).
• To reinforce financial cooperation, the Chinese mainland and Hong Kong agreed under Supplement VII to CEPA to introduce an open-end, index-tracking ETF backed by portfolios of Hong Kong-listed stocks on the mainland.
• Hong Kong is well placed to capture the opportunities provided under the mainland's Qualified Domestic Institutional investor (QDII) scheme.

Industry Data

Source: Fund Management Activities Survey 2010, Securities and Futures Commission

Range of Services

The fund management business comprises assets management, advisory business and other private banking activities. According to a survey released by the Securities and Futures Commission (SFC) in July 2011, the combined fund management business in Hong Kong hit a record high of US$1,294 billion as of end-2010, up 18.6% year-on-year (YoY). The combined fund management business comprised asset management business (67.8% share), private banking business of registered institutions (22%), fund advisory business of licensed corporations (9.1%) and REITs (1%).

Service Providers

Hong Kong is a major regional fund management centre with the largest concentration of international fund managers in Asia. According to the SFC survey, around 66% of the investment funds (excluding REITs) were sourced from outside Hong Kong.

Hong Kong's fund management industry has developed a strong expertise of investing in Asia, in particular the Chinese mainland. Such expertise is vital to Hong Kong's appeal for attracting funds for management. According to the SFC survey, 79.7% of the assets managed in Hong Kong were invested in Asia Pacific, amounting to HK$3,316 billion, with HK$2,086 billion in Hong Kong and the Chinese mainland, HK$258 billion in Japan and HK$974 billion in the rest of Asia Pacific respectively.

There is an increasing trend of mainland-related financial institutions establishing operations in Hong Kong. As of end-April 2011, around 51 mainland companies had established a total of 152 licensed corporations or registered institutions in Hong Kong, according to the SFC. The number of mainland-related companies managing SFC-authorised funds had increased from seven in 2009 to 10 as of end-June 2011. Meanwhile, the number of funds managed by these companies had risen from 65 in 2009 to 81 in 2010, with the net asst value gaining 16.2% to HK$53.2 billion.

As of end-2011, there were 2,501 authorised collective investment scheme, comprising 1,836 unit trusts & mutual funds, 254 investment-linked assurance schemes, 16 paper gold schemes, 9 REITs and 386 pension/MPF related funds.

Industry Development and Market Outlook

• ETFs listed in Hong Kong cover a wide range of geographical locations, including Hong Kong, the Chinese mainland, Japan, South Korea, Russia, India and other emerging markets. Types of assets include equity, Asian bonds, gold and commodity futures index, etc. The depth and breadth of investment funds managed in Hong Kong has increased notably in recent years. A broad range of investment products, ranging from low-risk bonds or money market funds to more sophisticated REITs and hedge funds products, are available in Hong Kong.
• As of end-2011, there were 88 listed unit trusts/mutual funds on the Main Board of HKEx, up from 79 as of end-2010. Among them, there were 77 ETFs and nine REITs. In 2011, there were 8 newly listed ETFs and one REIT, including the first RMB-denominated REIT listed in Hong Kong.
• In April 2011, Hui Xian REIT was listed as the first RMB-denominated fund product on the HKEx and the first RMB IPO outside the Chinese mainland, marking a milestone of the development of the offshore RMB in Hong Kong.
  In February 2012, Hang Seng RMB Gold ETF, the first RMB ETF in Hong Kong, was listed on the HKEx.
• In 2011, there were 15 ETF managers on the securities market of HKEx, with two newly added managers during the year, namely, CMS Asset Management (HK) Co Ltd and Mirae Asset Global Investments (Hong Kong) Ltd.
• The average daily turnover of ETFs in Hong Kong in 2011 stood at HK$2.2 billion, accounting for 3% of the Main Board’s average daily turnover. As of end-2011, Hong Kong’s ETF market capitalization amounted to HK$712 billion.
  In May 2009, the SFC signed a Side Letter to a bilateral Memorandum of Understanding (MOU) with the Taiwan Financial Supervisory Commission (TFSC) to allow cross listing of ETFs in the two markets. In July 2009, TFSC approved the offering of the first Hong Kong ETF in Taiwan, and the application to the Taiwan Stock Exchange for listing.
• To reinforce financial cooperation, the Chinese mainland and Hong Kong also agreed under Supplement VII to CEPA to study the introduction on the mainland of an open-end, index-tracking exchange-traded fund backed by portfolios of Hong Kong-listed stocks. Under Supplement VII to CEPA released in May 2010, the mainland will allow such ETF to be launched at an appropriate time, which is a clear sign that the ETF matter has moved beyond the stage of feasibility study to the stage of policy formulation.
• In October 2008, the SFC granted corporate-form ETFs exemption from the disclosure-of-interests requirements under the Securities and Futures Ordinance and the requirement to be or use an approved share registrar under the Securities and Futures (Stock Market Listing) Rules. These measures are expected to facilitate ETF listings in various forms in Hong Kong, provide a level-playing field for ETFs regardless of their legal forms, and align the practice in Hong Kong with international standards.

Qualified Domestic Institutional Investor (QDII)

In April 2006, the People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) jointly issued rules to allow qualified commercial banks to raise RMB funds from individuals and institutions to invest in overseas financial instruments. Hong Kong was the first market which mainland residents were allowed to invest via qualified mainland financial institutions. The QDII scheme is conducive to an orderly outflow of mainland capital.
Six lenders on the mainland were then allowed to provide such service to their customers, including ICBC, CCB, BOC, Bank of Communications and the mainland branches of HSBC and Bank of East Asia. QDII has since then been extended from banks to insurance companies, fund companies, and securities companies.

In August 2007, China Southern Fund Management (CSFM) set up the first QDII equity fund. Interests in the 100%-equity fund were overwhelming, as SCFM raised RMB 15 billion (around US$ 2 billion) for the fund in just a single day, with the fund more than three times over-subscribed.

As of end-February 2012, SAFE had granted QDII quota of US$9.5 billion to 26 banks, US$44.4 billion to 39 fund management companies and securities firms, US$19.6 billion to 26 insurance companies, and US$1.8 billion to 5 trustees, totalling US$75.2 billion.

China's World Trade Organisation (WTO) accession

The full potential of Hong Kong's fund management industry cannot be realised without the Chinese mainland market. China has a growing demand for fund management expertise to manage its massive savings pool and rapidly expanding retirement funds. Given its proximity to the Chinese mainland, Hong Kong is expected to play a key role in sharing its management skills and reservoir of experience in fostering the development of the mainland's fund management industry. With China having phased in all of its WTO commitments, overseas fund houses can now hold up to 49% of their mainland domestic fund companies.

Under China’s 12th Five-year Programme, it is stated that the mainland will support Hong Kong as an offshore RMB centre and fund management centre. Hong Kong’s financial services offer will be reinforced by an expected rise in dual-listing of stocks and ETF. Riding on the expanded RMB trade settlement scheme, Hong Kong has succeeded in expanding its offer of RMB-denominated financial products and services, including trade finance, RMB stocks, RMB bonds and other related products and services.

Vice Premier Li Keqiang, in his visit to Hong Kong in August 2011, outlined the mainland government’s support to Hong Kong in introducing ETF constituted with Hong Kong stocks on the Chinese mainland, developing channels to facilitate the cycling of RMB between Hong Kong and the mainland, and the RMB Qualified Foreign Institutional Investor (RQFII) scheme.