With much fanfare, the Connect programme was launched in China, Hong Kong and Macao earlier this month. The question is how quickly will wealth managers, banks and others take advantage of it.

Many fund managers are cagey about how and when to embrace growth opportunities stemming from the recently launched wealth “Connect” scheme binding Mainland China, Hong Kong and Macao closer together, research and analytics firm Cerulli Associates has said. Banks, however, are keener on the idea.

The scheme will initially lead to combined fund flows of RMB300 billion ($46.53 billion) in the Greater Bay Area. Banks including HSBC, DBS and Bank of China (Hong Kong) have applauded the launch, which has been in the works for months. Earlier in 2021, the Hong Kong-based family offices industry praised the scheme.

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

Earlier in September, China officially rolled out the GBA WMC, a cross-border investment scheme offering financial products in nine mainland cities in the Guangdong province, and Hong Kong and Macau. The structure is similar to other mainland-Hong Kong investment links, such as the Mutual Recognition of Funds regime. Under the southbound route, Mainland residents can invest in eligible investment products distributed by banks in Hong Kong and Macau by opening designated investment accounts with these banks. Under the northbound route, residents of Hong Kong and Macau can open accounts with Mainland banks to access onshore financial products.

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 authorised 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 Connect scheme launch comes at a time when Mainland China has been opening its capital markets to foreign firms and investors. Ironically, this coincides with the West being increasingly at odds with China over trade, human rights, alleged IP theft, and territorial incursions into the South China Sea. Famed hedge fund manager George Soros even publicly warned of the dangers of investing into China, taking aim at US titan BlackRock for so doing. 

Cerulli said that 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.

The firm said that “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 programme 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,” it said.

“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,” the report said.

Hong Kong managers who Cerulli spoke with “seem to be more optimistic about tapping the GBA market,” it said.

“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,” it added.