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Regulatory hurdles bar most funds from Shanghai-Hong Kong link: investor group
[HONG KONG] Technical and regulatory hurdles have so far kept most foreign fund managers from using a landmark Shanghai-Hong Kong trading link, forcing many to sit out a sizzling rally in mainland China shares.
Investor group, the Hong Kong Investment Funds Association, said on Tuesday that only 13 of 41 asset managers that responded to a survey indicated they had invested through Hong Kong-Shanghai Stock Connect, in the first data on investor participation to emerge since the scheme launched on Nov 17.
"In general, we had a positive response from our members on the potential opportunities of using Stock Connect in the long term," Bruno Lee, chairman of the HKIFA told a news conference in Hong Kong. "But we do need more details before firms can fully leverage the scheme." Stock Connect allows foreign investors to directly trade Shanghai shares via the Hong Kong exchange for the first time, but volumes have fallen far short of expectations.
The 13 managers who are using the scheme are primarily investing through Hong Kong-domiciled or unregulated funds, while US- and European-regulated investors are grappling with the scheme's settlement rules, its system for safe-keeping assets, and confusion over China's share ownership rules, Hong Kong's main investor group said.
The vast majority of European Union-regulated funds are awaiting the greenlight from Europe's major funds regulators in Luxembourg and Dublin, who have raised concerns over these investor protection issues, as reported by Reuters in November . "Over 88 per cent of the Hong Kong (funds) market is domiciled under EU governance, so those technical and regulatory (questions) in Europe are a particular issue," said Mr Lee.
The HKIFA is in discussions with the Hong Kong and mainland regulators to help iron out some of these wrinkles, while the Hong Kong authorities are also in discussions with overseas watchdogs, said Lee, adding that he expects the authorities to propose some solutions in the near future.
The Hong Kong Exchanges & Clearing has said it expects to resolve the settlement problem by the end of the first quarter.
The HKIFA received responses from 41 of its 64 member firms, mostly comprising global asset managers representing around US$20 trillion in assets. Just over half of the 41 firms said they expect to use Stock Connect to invest during 2015, while 47 per cent "expressed interest" in the scheme.
Mr Lee said: "We are confident that once the regulatory and technical issues are resolved the level of usage will increase."