Wealth mgmt scheme to up investment

As Chinese mainland and Hong Kong authorities recently introduced new rules to regulate cross-border investment activities, market demand for compliant investment channels such as Stock Connect, the Qualified Domestic Institutional Investor program and the Cross-boundary Wealth Management Connect Scheme in the Guangdong-Hong Kong-Macao Greater Bay Area is expected to grow significantly.

Wu Zewei, a special researcher at Jiangsu Su Merchants Bank, said that following the introduction of the new regulations, compliant Cross-boundary Wealth Management Connect Scheme channels may attract more investors as the regulatory environment becomes more stringent. In the medium to long term, the new measures explicitly eliminate unauthorized cross-border business activities conducted by offshore institutions, prompting mainland investors to seek legitimate alternatives.

On May 22, eight mainland government departments — led by the China Securities Regulatory Commission — issued an implementation plan to eradicate illegal cross-border securities, futures and fund business activities within two years.

Some offshore institutions have provided mainland investors with cross-border securities, futures and fund trading services in recent years through online platforms and offline marketing activities without approval from mainland financial regulators. Analysts said the implementation plan's core objective is to cut off the funding channels and business networks supporting illegal cross-border financial activities and guide cross-border investment demand into a regulated, traceable and protected framework.

The mainland's latest campaign against illegal cross-border securities activities is expected to help strengthen rather than weaken Hong Kong's position as an international financial center, said Eddie Yue, chief executive of the Hong Kong Monetary Authority.

"For Hong Kong as an international financial center, I think this is actually more conducive and further strengthens its position, because no international financial center would allow or tolerate illegal activities taking place within its jurisdiction," Yue said.

Hong Kong regulators have maintained close communication with mainland authorities on the implementation of the rectification measures. On the day the plan was announced, both Hong Kong's Securities and Futures Commission and the HKMA issued circulars requiring securities firms and banks to strengthen account opening procedures and compliance requirements.

Hong Kong-based lenders have been highly supportive of the changes and have completed the necessary system upgrades. Banks have introduced additional declarations requiring clients to confirm that funds transferred to Hong Kong originate from lawful sources, while account opening services have continued in a smooth manner, Yue said.

Industry experts believe that the Cross-boundary WMC Scheme could become one of the primary channels for overseas investment.

The scheme's advantages — including high security, transparent procedures and closed-loop fund management — will become even more prominent. Although the current southbound Cross-boundary WMC products are mainly low to medium-risk offerings, which may not satisfy investors with a higher risk appetite, the credibility of their bank distribution channels is expected to attract prudent capital returning from illegal channels, Wu said.

The Guangdong branch of the People's Bank of China said that since the beginning of this year, 2,744 new individual investors have joined the Cross-boundary WMC Scheme, including 750 additions in April alone.

As of end-April, 180,600 individual investors had participated in the scheme, comprising 55,200 investors from Hong Kong and Macao, and 125,400 investors from the mainland. Pilot institutions on the mainland had processed a total of 137.46 billion yuan ($20.29 billion) in cross-border fund transfers through closed-loop fund remittance channels.

In addition, Stock Connect is also expected to attract a substantial amount of redirected capital. Sun Ting, chief analyst for the nonbank financial sector at Soochow Securities, said Stock Connect's strengths lie in its trading convenience and strong liquidity, with its portfolio now covering more than 500 Hong Kong-listed stocks and over 30 exchange-traded funds.

Several brokerages have recently launched dedicated Stock Connect sections on their mobile apps and are actively seeking to attract new clients.

Contact the writers at jiangxueqing@chinadaily.com.cn