A deal that will soon be signed by Hong Kong and China could potentially allow billions of dollars of cross-border investments in stocks and bonds, reports the Wall Street Journal, citing fund managers, bankers, and strategists familiar with the talks.
The deal, which is seen as the "best thing to happen to Hong Kong's asset management industry," will allow Chinese investors for the first time to invest directly in fund products launched by a non-Chinese asset manager without a China domicile.
The Journal notes that for Chinese investors, buying into Hong Kong-domiciled funds like stock funds offered by J.P. Morgan Asset Management and Fidelity Investments would give a much-needed outlet for investment.
"Many mainland investors have accumulated a decent amount of wealth, but they lack investment alternatives—there is high concentration risk," says Sally Wong, chief executive of the Hong Kong Investment Funds Association.
Chinese fund managers, meanwhile, will be able to sell their funds to overseas buyers eager to have more access to relatively cheap stocks that could benefit from a new wave of government reform.
Under the current system, a non-Chinese resident that wants to buy Chinese stocks or bonds needs to buy through two quotas: the Renminbi Qualified Foreign Institutional Investor program and the older Qualified Foreign Institutional Investor program, according to the Journal. These two quotas allow foreigners to buy US$76 billion of Chinese stocks and bonds in the country.