The launch of the Wealth Management Connect (WMC) scheme last Friday has triggered a race among Hong Kong banks and asset managers to carve as much market share as they can and as quickly as possible in a bid to dominate the market.
The outcome, however, will depend on how hungry high-net-worth investors in the Greater Bay Area (GBA) are for the plain vanilla Hong Kong-domiciled overseas funds that will be on offer under the cross-border investment link. Although the WMC is a two-way scheme with southbound (Hong Kong) and northbound (mainland) components, it is the southbound flows where the most lucrative opportunities are waiting for Hong Kong banks and asset managers.
HSBC plans to provide over 100 selected wealth management products at low to medium risk, covering all asset classes allowed by the rules, according to a statement issued after the WMC launch.
J.P. Morgan Asset Management (JPMAM) also announced it currently offers 30 Hong Kong-domiciled funds authorized by the Securities and Futures Commission (SFC) including money market, fixed income, multi-asset and equity funds.
AUM surges
Other banks and asset managers who issued press releases welcoming the WMC launch did not specify how many products they have designed to qualify for the much-awaited scheme.
But there was a significant rise in the number of funds registered in Hong Kong from June 2020 to June 2021. An additional 57 funds were set up in Hong Kong, with total assets under management (AUM) rising by 32% to US$200 billion during the period, according to a Standard Chartered report, “Cross-Boundary Wealth Management Connect”.
“In terms of cross-border flows, eventually the WMC will become a net outflow programme for the mainland, but cross-border flows could be relatively balanced at this initial stage,” the report says. “At the initial stage, the relatively narrow scope of offshore eligible products under the southbound connect provided on the Hong Kong and Macau banking sectors (as most funds are registered outside of HK/Macau) may slow down mainland investors’ investment.”
While the scope of eligible mainland products for the northbound component of the scheme is very wide, the populations of Hong Kong and Macau (7.4 million and 650,000 respectively) are far smaller than the number of mainland residents in the GBA (estimated at 80 million).
Under the current rules, Hong Kong banks and asset managers would have to tie up with local fund distributors in the GBA. In this regard, those with more established distribution partnerships and networks in the GBA would have an advantage. HSBC, for example, claims to have 5,000 retail banking staff in the GBA to support WMC investment.
Simple products
Many banks and asset managers have been preparing for the launch of the WMC since the announcement of the pilot programme in June 2020.
The southbound component of the scheme covers eligible residents in the mainland GBA cities (Dongguan, Foshan, Guangzhou, Jiangmen, Huizhou, Shenzhen, Zhaoqing, Zhongshan, and Zhuhai) investing in wealth management products distributed by banks in Hong Kong and Macau via designated channels.
Northbound refers to eligible residents in Hong Kong and Macau investing in wealth management products distributed by mainland banks via designated channels.
In the initial stage, the WMC product scope mainly covers relatively simple wealth management products of low-to-medium risk.
Investors are required to open one bank account with cross-boundary remittance function (dedicated remittance account) and one bank account with investment function (dedicated investment account) with banks in their place of residence and the other market respectively, and have the two accounts paired with each other. Cross-boundary renminbi fund flows are subject to closed-loop and quota management, according to the Hong Kong Monetary Authority.
