Overview

• Hong Kong is widely recognised as the leading fund management centre in Asia with the largest concentration of international fund managers.
• In 2008, seven exchange-traded funds (ETF) were listed in Hong Kong, including the first gold ETF that was listed in July 2008. By mid 2009, 11 other ETFs were listed, bringing the total number of ETFs listed in Hong Kong to 35.
• In May 2009, Hong Kong's Securities and Futures Commission (SFC) signed a Side Letter to a bilateral Memorandum of Understanding (MOU) with 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 agreed under Supplement VI to CEPA to study the introduction on the mainland of an open-end, index-tracking ETF backed by portfolios of Hong Kong-listed stocks.
• Under Supplement VI to CEPA that will take effect from October 2009, Hong Kong securities companies can form joint-venture companies with their mainland counterparts in Guangdong to carry out securities investment advisory business.
• Hong Kong is well placed to capture the opportunities provided under the mainland's Qualified Domestic Institutional investor (QDII) scheme.

Industry Data

Range of Services

The fund management business comprises assets management, advisory business and other private banking activities. According to a survey conducted by the Securities and Futures Commission (SFC), , the total asset under management of Hong Kong's fund companies amounted to US$750 billion as of end-2008, falling 39.3% year-on-year (YoY) as a result of the financial tsunami, after reaching a record high of US$1,235 billion in 2007. However, the three-year average for the combined fund management business stood at US$ 925 billion, largely following an uptrend.

Service Providers

Hong Kong is a major regional fund management centre with the largest concentration of international fund managers in Asia. According to a survey conducted by the SFC, there were 351 companies engaged in fund management business in Hong Kong as of end-2008. Hong Kong's fund management industry is also characterised by its international and offshore nature. According to the SFC survey, around 64.2% of the investment funds 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, 76.5% of the assets managed in Hong Kong were invested in Asia, amounting to HK$ 1,726 billion, with HK$ 1,055 billion in Hong Kong and the Chinese mainland, HK$130 billion in Japan and HK$ 541 billion in the rest of Asia Pacific respectively.

Industry Development and Market Outlook

• 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.
• Exchange-traded funds (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 average daily turnover of ETFs in Hong Kong in the first six months of 2009 stood at US$224 million, exceeding Japan's US$188 million. As of end-June 2009, Hong Kong's ETF market capitalization amounted to US$51.76 billion. In 2008, seven ETFs were listed in Hong Kong, including the first gold ETF that was listed in July 2008. By mid 2009, 11 other ETFs were listed, bringing the total number of ETFs listed in Hong Kong to 35.
• In May 2009, the SFC signed a Side Letter to a bilateral Memorandum of Understanding (MOU) with 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 VI to CEPA to study the introduction on the mainland of an open-end, index-tracking exchange-traded fund (ETF) backed by portfolios of Hong Kong-listed stocks. Industry operators in Hong Kong welcomed this ETF proposal, considering it a positive measure to stimulate the demand for Hong Kong-listed stocks in future to boost stock market turnover.
• 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.
• Under Supplement VI to CEPA that will take effect from October 2009, Hong Kong securities companies can form joint-venture companies with their mainland counterparts in Guangdong to carry out securities investment advisory business.
• In 2008, 127 new licences were granted to corporations, allowing them to conduct asset management and advisory businesses, and another 31 existing licensed corporations added the above activities to their licences. There was a net increase of 108 licensed corporations carrying on activities concerning asset management and/or advising on securities and/or futures contracts in 2008.
• According to the Alternative Investment Management Association (AIMA), Hong Kong was the largest hedge fund centre in Asia in December 2008, with 245 fund managers overseeing HK$22 billion of assets in the city, more than that of Singapore or Australia, which had respectively 150 and 145 hedge fund managers.
• There were 30 hedge fund start-ups in Hong Kong in 2008, up from 25 in 2007. The amount of HK$1.6 billion raised was the largest in Asia in 2008, surging 22% YoY, compared to HK$ 638 million in Singapore (which had the second largest number of start-ups).
• At the end of 2008, China's National Social Security Fund (NSSF) reached RMB 562.4 billion. Up to 20% of NSSF asset can be invested in foreign markets, which is expected to benefit Hong Kong's fund management business.
• In July 2008, the SFC signed the first mutual recognition agreement with the Australian Securities and Investment Commission to enhance the sale of retail funds to investors in each other's market.

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 -May 2009, SAFE had granted a QDII quota of US$ 40 billion to ten mainland fund management companies and one securities firm, and a quota of US$ 16.6 billion to 21 mainland commercial banks pursuant, allowing them to invest in foreign markets.

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 phasing in its WTO commitments, overseas fund houses can now hold up to 49% of their mainland domestic fund companies.