ALFI and Asia: the Hong Kong representative office
ALFI’s representative office in Hong Kong has been instrumental since 2010 in capitalising on the good reputation Luxembourg funds enjoy in Asia, notably in the context of China moving towards internationalisation of its financial sector and showing a marked interest for green finance in particular.
During the last year, the Stock Connect programme, launched in 2014 as a collaboration between the stock exchanges in Hong Kong, Shanghai and Shenzhen, has been enhanced with new procedures for delivery-versus-payment (DvP) transactions, with Hong Kong now offering real-time DvP settlements.
2017 also saw the launch of Bond Connect, a channel establishing mutual bond market access for Chinese and international investors through connected financial infrastructure between mainland China and Hong Kong, with inbound trading commencing in July. This has opened the Chinese bond market – the third-largest in the world – to the overseas investment community. Outbound transactions are a future ambition.
The QDII scheme, under which Chinese industry stakeholders could be licensed and granted quotas for investment abroad since 2006 but which had been suspended since March 2015, has been revived. Aiming to halt the massive capital outflow following the yuan depreciation at the time, the regulator had not been granting any licences in the past three years. In April 2018, new quotas worth USD 8.34 billion were handed out again, resulting in a total quota of USD 98.33 billion between 144 Chinese financial institutions.
In an even more recent development, Chinese A-shares have been added to MCSI indices. At the end of May 2018, the MSCI Emerging Markets index included 236 large cap A-shares as the first of two steps in a process which may eventually raise China’s weight in the index to over 40%.
Efforts to increase cross-border fund distribution in the region also continue.
The participants in the ASEAN Collective Investment Scheme CIS – Singapore, Thailand and Malaysia – have further streamlined their authorisation processes by lowering the AuM threshold from USD 500 million to USD 350 million and by offering asset managers generally an enhanced flexibility and better time to market.
Following the mutual recognition of funds agreement (MRF) between Hong Kong and China three years ago, today there are 50 China-domiciled funds approved for distribution in Hong Kong, and 10 Hong Kong funds for distribution in China, corresponding to AuM of USD 60 billion and RMB 5,241.4 billion respectively.
The launch of another passporting initiative, the Asia Region Funds Passport (ARFP), has been postponed to August 2018, as progress made in harmonising taxation in the participating jurisdictions is not deemed sufficient yet.
In terms of funds genuinely suitable for cross-border distribution in Asia, UCITS are therefore still the favourite option.
Building on the brand’s success in the region, ALFI, forming part of a Luxembourg delegation led by the Embassy of Luxembourg in Bangkok and along with Luxembourg for Finance, set out to South East Asia and South Asia to bring together financial communities from Luxembourg and locally. The missions led to Thailand and Vietnam in December 2017, Indonesia and Malaysia in January 2018, and India in February 2018.
ALFI’s annual roadshows in Asia took place in Hong Kong, Tokyo and Singapore in January 2018. Two breakfast seminars attracted the interest of around 90 Hong Kong asset managers each, examining current topics, the future of Chinese growth sectors and opportunities for Luxembourg in connection with the Chinese Belt and Road initiative.
Another natural domain for synergies is the growing Asian interest in green finance. Hong Kong, China and Singapore are just some of the jurisdictions that seek to position themselves as specialist centres in sustainable finance, as has been evidenced by an increasing number of events over the past year in this field, in which Luxembourg with its existing expertise has a lot to offer.
It is also welcome news that AMAC, the Asset Management Association of China, has appointed ALFI to its International Partners Committee for a second two-year term.
In the future, ALFI will continue to monitor the exciting developments in the region. The ALFI representative office in Hong Kong is well-positioned to raise the profile of the Luxembourg investment fund industry in Hong Kong, China and beyond.
Ching Yng Choi
Head of the ALFI Representative Office in Hong Kong