Hot rush buying, some products have seen a scale increase of over 7 times, the total scale of Hong Kong mutual recognition funds is approaching 200 billion.

In 2025, the "first fire" of the fund industry spread to the overseas fund market. With the mutual recognition fund quota "opening" on January 1st, the quotas of many mutual recognition funds soared. With the combination of high-yield asset allocation and expectations of a declining exchange rate, institutions have started a frenzy of early-year grabbing. According to calculations by Caixin, there are currently 21 fund managers who have registered and issued 127 Hong Kong (northbound) mutual recognition funds, with a total size of approximately 187.79 billion yuan. Compared to QDII and other products, mutual recognition funds have the potential to attract more and more high-quality overseas asset management institutions and high-quality fund products to enter the mainland market, presenting a broad market outlook. On December 20, 2024, the China Securities Regulatory Commission further optimized the arrangement for mutual recognition of funds between mainland China and Hong Kong, and issued the "Management Regulations for Hong Kong Mutual Recognition Funds" (referred to as the "New Regulations"), which will come into effect on January 1, 2025. The revision of the new regulations that has attracted the most attention from the market is the moderate relaxation of the client-to-client sales ratio of mutual recognition funds, that is, "following the principle of steady and orderly, gradually opening up, the client-to-client sales ratio of mutual recognition funds is relaxed from 50% to 80%." By this calculation, after the new regulations take effect, mutual recognition funds in mainland China will have a higher sales quota, with the new maximum size being four times the original, and the sales volume of the same fund in mainland China has increased threefold. Total size of Hong Kong mutual recognition funds is approximately 1875.79 billion yuan Mutual recognition refers to mainland and Hong Kong funds that meet certain conditions and have obtained recognition or permission from the regulatory authorities of both places through legal procedures, can be publicly sold in the other market. Among them, mainland funds allowed to be sold in Hong Kong are called "mainland mutual recognition funds", while Hong Kong funds allowed to be sold in mainland China are called "Hong Kong mutual recognition funds". The managers of Hong Kong mutual recognition funds must be licensed institutions registered and operating in Hong Kong, given that Hong Kong is an international financial center that attracts global professional asset management institutions, with a total of 21 such managers. According to data from Wind, as of January 7, 2025, 21 fund managers had registered and issued 127 Hong Kong (northbound) mutual recognition funds, with the majority being bond funds (75 in total); excluding funds with the same investment targets but different rules, there were only 42 different investment target mutual recognition funds from Hong Kong, with a total size of approximately 187.79 billion yuan, indicating a significant remaining growth space towards the total limit of 300 billion yuan. Data source: Wind, compiled by Caixin From an investment region perspective, nearly half of the registered Hong Kong mutual recognition funds mainly invest in Greater China assets, while the remaining half are invested in the United States, the Asia-Pacific region, Europe, and other regions. For example, the largest fund in terms of scale is the Morgan International Bond Fund (latest size of 17.438 billion yuan), with 41.2% of funds allocated to North America and another 30.1% invested in mature European markets according to the latest monthly report. Some products saw their scales increase more than 7 times With the new regulations in place, the client-to-client sales ratio of Hong Kong mutual recognition funds has been increased from 50% to 80%. This means that an additional 3 times the quota has been released on top of the existing quota, opening up a market demand gap. Many mutual recognition funds, such as E Fund (Hong Kong) Select Bond Fund, closed their doors to new investors after just 1 day and the latest scale has reached 2.178 billion US dollars. Last Friday, the open-purchase Southern Dongying Selected Dollar Bond Fund saw its scale surge to 15 billion yuan in just two working days, compared to less than 1.8 billion yuan before the new regulations were introduced, an increase of over 700%. Data source: Wind, compiled by Caixin Since last year, with large-scale restrictions on the purchase of QDII funds, mutual recognition funds have become a choice for investors to diversify their global asset allocation without using foreign exchange quotas, filling a market gap where some QDII funds have limited growth potential. In addition, industry insiders told Caixin that the popularity of mutual recognition funds started as early as the middle of last year, with some bond-type mutual recognition funds being favored by FOF managers, and their holdings steadily increasing in size. According to statistics from the Founder team, as of the third quarter of 2024, as many as 215 FOF funds (accounting for 43.0%) had overseas fund products in the top ten holdings before the quarterly report, with a total holding size of 5.282 billion yuan, an increase of 1.615 billion yuan from the second quarter of 2024. Limited by the subscription quota, the changes in the allocation size of FOF funds to QDII bond funds in the third quarter were not significant, shifting to significantly increased holdings of mutual recognition bond funds, with the number of FOFs allocated increasing by 11 to 35, holding market value increasing by 230 million yuan to 505 million yuan, with an average position of up to 9.63%. In the view of market analysts, even though the expansion of quotas in the early part of the year allows mainland investors to buy more Hong Kong mutual recognition fund products, the subscription threshold is relatively high (starting at 50,000 yuan). Additionally, the fluctuations in share values are high, making it less friendly for ordinary mainland investors. From the frenzy of subscription for mutual recognition funds, it is the insurance asset management and bank wealth management players that are the main participants in this wave of mutual recognition fund subscriptions given the favorable market conditions. "Some institutions are also betting on the exchange gains brought about by the depreciation of the renminbi, with high-interest coupons being a secondary consideration. With the slowdown in the Fed's interest rate cuts, U.S. bond yields are still on the rise, and with the widening of the China-U.S. interest rate differential, capital gains are also quite substantial," noted an industry insider. However, it is worth noting that the net asset yield of individual products in mutual recognition funds is not high. Taking the popular Southern Dongying Selected Dollar Bond Fund as an example, the net asset yield is around 5.5% in the past year, but with an annualized volatility rate of 3.3%, the holding experience may not be very friendly. Data source: Wind, compiled by CaixinSocial sortingMutual recognition funds have obvious advantages and broad prospects for development. Looking at the establishment time of mutual recognition funds in 2024, they all appeared after the expansion of 22.7 billion US dollars of QDII in May. Due to the enthusiasm for overseas asset subscription, there are not many international asset management institutions issuing fund products in Hong Kong, aiming to layout global assets. Currently, the channels for mainland investors to invest in overseas funds mainly include buying QDII/QDLP/QDIE products, buying Hong Kong mutual recognition funds, and buying overseas products through "cross-border wealth management channels". With the relaxation of the quota ratio of Hong Kong mutual recognition funds, it is expected to greatly enrich mainland investors' choices for cross-border wealth management and provide convenience for global asset allocation, promoting the construction of Hong Kong as an international financial center. China Securities Co., Ltd. believes that mutual recognition funds have several advantages compared to QDII funds. For example, mutual recognition funds are not limited by QDII quotas, but only by the sales ratio between the two places, with a total quota limit of 300 billion yuan. Additionally, many mutual recognition funds have hedging shares to hedge against exchange rate risks. At the same time, most mutual recognition funds offer regular dividends and the choice of accumulation shares, but it should be noted that a certain proportion of dividend tax (such as 20%) needs to be paid for mutual recognition fund dividends. In addition, in terms of information disclosure, mutual recognition funds provide monthly fund reports to disclose the fund's asset holdings to investors. China Wealth also believes that due to the different characteristics in strategy and product quotas, compared to QDII, mutual recognition funds are more suitable for investors with active management strategies for global asset allocation. Many industry experts also predict that with the landing of new regulations for mutual recognition funds, strong demand, larger sales scale, and relatively optimized participation conditions are expected to attract more high-quality overseas asset management institutions and high-quality fund products to enter the mainland market. At the same time, considering the "hot in the south and cold in the north" situation in mutual recognition fund sales, the future of mainland (southward) mutual recognition funds is also expected to be relaxed. This article is from "Cailian News", GMTEight editor: Liu Xuan.