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China’s Greater Bay Area Opportunities on Standby

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The long-awaited, newly launched Greater Bay Area Wealth Management Connect (GBA WMC) could offer significant opportunities for financial institutions, as more liberalization measures could be introduced in phases, according to findings presented in Cerulli Associates’ The Cerulli Edge—China Edition, 3Q 2021 Issue. However, while several large banks are keen to capture growth opportunities through the scheme, many fund managers are neutral and adopting a wait-and-see approach.

On September 10, China officially rolled out the GBA WMC, a cross-border investment scheme offering financial products in nine Mainland cities in the Guangdong province, and the two Special Administrative Regions (SARs) of Hong Kong and Macau. Similar to other well-established Mainland-Hong Kong investment links, such as the Mutual Recognition of Funds (MRFs), the GBA WMC has two components. The southbound route allows Mainland residents to invest in eligible investment products distributed by banks in Hong Kong and Macau by opening designated investment accounts with these banks. And the northbound route allows residents of Hong Kong and Macau to open accounts with Mainland banks to access onshore financial products.

Under the current implementation rules, eligible northbound products offered by Mainland producers cover mutual funds as well as fixed-income and equity banks’ wealth management products, both with low- to medium-risk ratings. Eligible southbound products cover Hong Kong-domiciled funds authorized by the Securities and Futures Commission, bonds, and certain deposits, which also need to be assessed by distributing banks as low- to medium-risk rated “non-complex” products. The first batch of product launches can be expected in mid-October, at the earliest, with many large banks present in the nine Guangdong cities and the two SARs actively pouring in resources as they prepare to participate in the GBA WMC.

Many Mainland fund managers Cerulli spoke with are adopting a wait-and-see approach. Some are cautiously optimistic about the scheme, as the similar MRF program between the Mainland and Hong Kong has not attracted significant fund sales. Some believe there could be somewhat of a mismatch between investor demand for high-risk and high-return products, and available product supply. Others intend to sell money market funds and low-risk fixed-income funds to offshore investors, as Mainland returns are slightly higher than those offshore. Some also see increasing outsourcing mandates from banks’ wealth management subsidiaries, allowing managers to engage in the GBA WMC indirectly.

On the other hand, Hong Kong managers Cerulli spoke with seem to be more optimistic about tapping the GBA market. A few global fund houses have reportedly added Renminbi shares to non-Renminbi denominated funds in Hong Kong for subsequent product launches. Like some of their Mainland counterparts, some Hong Kong managers see a possible misalignment between the low- to medium-risk products offered by the scheme and what investors demand. Although plain-vanilla products are less attractive to Mainland investors in the low interest environment, managers understand that regulators want to roll out the scheme in a controlled manner.

Ye Kangting, Cerulli

“Despite the immense opportunities available, Cerulli does not expect huge capital flows in the early phase of the GBA WMC,” said Ye Kangting, senior analyst with Cerulli. “This is because regulators, especially those on the Mainland, are concerned about investor protection and capital flow control.”

She added: “Nevertheless, fund managers who want to take part in the GBA WMC should understand investors’ product preferences well, deepen their collaborations with both onshore and offshore distribution banks, and enhance their brands by building or leveraging on strong research and investment capabilities, in order to stand out from the competition.”