Hong Kong regulators have turned on the green light for the first batch of funds to be bought and sold between the jurisdiction and mainland China.

Fund management firms have started launching portfolios that take advantage of a new passport regime to buy and sell funds between Hong Kong and mainland China. Among the entrants to the field is the ZEAL Voyage China Fund, while other products in the first batch of entrants were from HSBC, an ICBC/Credit Suisse joint venture-backed fund, and a fund of Hang Seng Bank's investment management arm.

In the case of HSBC, it is launching the HSBC Jintrust Large Cap Equity Securities Investment Fund to be distributed in Hong Kong under the Mutual Recognition of Funds (MRF) scheme. The launch has been approved by regulators. This fund is mainly invested in large-cap blue chip companies across industries in the A-share market. Meanwhile, Hang Seng Investment Management, a wholly-owned subsidiary of Hang Seng Bank, has won approval from the China Securities Regulatory Commission to register its Hang Seng China H-Share Index Fund under the MRF programme. Another entity in the first round was ICBC and Credit Suisse's ICBC Credit Suisse China Core Value Mixed Fund. 

In the case of the ZEAL Voyage China Fund, the master agent in the mainland is Tianhong, which has partnered with Zeal, a Hong Kong asset manager. The firms plan on bringing the fund to mainland investors in early January.

The passport regime is an attempt to create a larger, more liquid investment market. There are echoes of the European Union’s UCITS structure where “passportable” funds can be bought and sold across national borders. Policymakers in Beijing and Hong Kong aim to emulate what is seen as one of the more successful examples of European financial market integration.

Besides the MRF, there is also the ASEAN fund passport initiative, under which Singapore, Malaysia and Thailand have agreed a framework for the cross-border passporting of funds. Meanwhile, ARFP is the Asia Region Funds Passport, initially set up by Singapore, New Zealand, Australia and South Korea. In all of these cases, it is probable that the number of jurisdictions involved will expand in time.

The Hong Kong Securities and Futures Commission said: “[The] MRF initiative is a major breakthrough in the opening up of the mainland’s funds market to offshore funds. It will open up a new frontier for the mainland and Hong Kong asset management industries and make available a wider selection of fund products to investors in both markets.”

Zhou Xiaoming, Tianhong's deputy general manager, said: "Mainland-Hong Kong Mutual Recognition of Funds represents a great start in expanding our product line to cover overseas markets, helping our clients perform global asset allocation. We are very pleased to have one of the first funds approved for mutual recognition. 

“We have chosen online fund distributors such as Ant Fortune, Tianhong’s official website and APP, Tianhong WeChat Official Account, and Alipay Service Channel as the sales platforms for funds under the Mutual Recognition of Funds. We are also working with many other leading third-party sales platforms including Tiantian Fund Sales and LU.com to serve a wide spectrum of customers with needs for overseas investment,” he added.

"With the collaboration of Zeal and Tianhong in the novel mainland-Hong Kong Mutual Recognition of Funds platform, we will bring more opportunities for overseas investment and wealth creation for mainland domestic investors."

Hong Kong and China regulators have been accepting MRF applications since 1 July 2015.