June 14, 2017 / 1:07 PM / 2 years ago

China regulator tightens registration rules for Hong Kong-focused funds

(Reuters) - China’s securities regulator has tightened registration rules for Hong Kong-focused mutual funds, requiring equity funds with “Hong Kong” in their names to invest at least 80 percent of their non-cash assets in the Chinese territory’s stocks.

The guidelines came after complaints by investors earlier this year that some funds with “Hong Kong” in their product names actually had little exposure to the stocks there.

In a document obtained by Reuters on Wednesday, the guidelines also require fund managers with substantial Hong Kong experience to manage the Hong Kong-labeled products.

The guidelines, which the China Securities Regulatory Commission issued to domestic fund houses, could accelerate mainland money flows into Hong Kong as fund houses rush to launch funds that invest in one of the world’s best-performing markets so far this year.

Li Kai, vice head of product development at First Seafront Fund Management Co, which received the guidelines, said that although the rules apply to new funds, regulators may also ask existing funds to renew their registration and meet new asset allocation requirements.

Currently, over 100 mutual funds in China have “Hong Kong” in their names. China’s institutional and retail investors can now invest in Hong Kong stocks via the cross-border Stock Connect schemes.

The new schemes have channeled steady inflows of mainland money, which helped push Hong Kong’s benchmark Hang Seng Index to the highest level in nearly two years.

The guidelines also require that Hong Kong-focused funds have at least two employees, one of whom has to be a fund manger, who have at least two years of investment management experience in Hong Kong.

Under the new rules, Chinese mutual funds without “Hong Kong” in their names must not invest over 50 percent of their equity assets in Hong Kong stocks, the documents showed.

Reporting by Samuel Shen in Shanghai and Lee Chyen Yee in Singapore; Editing by Mark Potter

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