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New Market Connect Schemes Between Mainland China and Hong Kong Unlock Further Opportunities for Overseas Asset Managers: But Are You Ready?

July 14, 2022
By Patrick Yu

The continuous liberalization of the capital market in mainland China provides many opportunities for international institutional investors. The long-awaited exchange-traded fund (ETF) connect scheme between Hong Kong and mainland China began July 4, 2022, with aggregate debut trading volume amounting to RMB28.5 billion (US$4.25 billion). In addition, a new initiative, “Swap Connect,” was announced to allow mutual access between Hong Kong and mainland China’s interest rate swap markets. These two initiatives mark a major milestone in the ongoing market opening of the mainland China capital market and for the participation of overseas investors in local ETFs and derivatives, on top of the existing access to equities and bonds.

In our recent white paper “The Future of Asset Management in Asia,” investors in mainland China and Hong Kong showed a preference for a more risk-aversive approach, as well as an interest in ETFs (42% for mainland China and 52% for Hong Kong) in the next 12 months. With increasing global volatility driven by the Ukraine-Russia conflict, most investors in mainland China and Hong Kong are moving investments into lower risk options as well.

With the ongoing market volatility and uncertainty, how should overseas asset managers tap into the Greater China region?

Credibility and performance

Most global asset managers can capitalize on their international experience in different investment strategies, including ETFs and derivatives, to enable investors to explore untapped and forward-thinking opportunities. Building a strong narrative through targeted communications can help differentiate from other peers and help investors achieve risk-adjusted returns. 

No surprises for investors

Transparency in communications is key, and our report showed that it is an important trait for overseas asset managers. In addition to communicating transparently on fees and performance, managers also need to elevate their communications strategy to articulate their corporate vision, mission and purpose, as well as their long-term commitment to serving investors in the region. The ‘good old days’ of wooing Asian investors with a parachute tour by star fund managers are long gone. Investors want more regular and meaningful communications, be it through their relationship managers or via social and digital communications.

Invest well and do well

Recent greenwashing scandals have led to investors asking questions about the credentials of asset managers’ responsible and sustainable investment strategies. Putting ESG at the center of day-to-day operations will help overseas asset managers show that they “walk the talk”. They need to take bold decisions about whether to divest from, refrain from investing in or engaging constructively with companies that show poor ESG scores. A commitment to decarbonization and net zero emissions will become an even more important element of communications as firms seek to align with the mainland Chinese government’s double carbon objectives. Overseas asset managers need to double down on their efforts on responsible investment, demonstrating the impact they have on society and the environment.

The asset management industry in Greater China is unique, and every asset manager needs to have its own game plan to navigate the complexity and nuances of this market. Market entry communications and narrative building are critical for turbocharging overseas asset managers’ growth in the region.