Increased Connectivity Expands Asia’s Cross-Border Opportunities
July 13, 2021 — Singapore
The growing number of cross-border links could help to meet demand for overseas assets
Interest rate cuts and volatility in global capital markets have once again reminded investors of the benefits of diversification, boosting appetite for foreign investments. Alongside this growing demand, Asian regulators have been putting in efforts to further liberalize cross-boundary investments.
One of the most highly anticipated connectivity schemes is the Guangdong-Hong Kong-Macao Greater Bay Area Wealth Management Connect (WMC), which will offer residents access to wealth management products distributed by banks in the area, once rolled out. In addition, Shenzhen and Hong Kong launched a master-feeder exchange-traded fund (ETF) link in 2020, with the first batch of four ETFs listed last October. Two new funds were added to the China-Japan ETF link this year, with the scheme having debuted in mid-2019. Another ETF cross-listing link will soon be rolled out between China and Korea, following an agreement in May 2021.
Other supportive moves include India’s raising of each fund company’s investment limit in overseas ETFs from US$50 million to US$200 million, and the doubling of each fund manager’s offshore securities investment limit to US$600 million last November. In Southeast Asia, the Philippines joined the ASEAN Collective Investment Scheme passporting framework in May this year, and a Mutual Recognition of Funds scheme between Hong Kong and Thailand took effect the following month. Korea introduced the Asia Region Funds Passport scheme in May 2020, although the scheme has yet to approve its first fund.
Meanwhile, growing appetite for foreign investments has been witnessed throughout many Asian markets, aside from Hong Kong and Taiwan, where retail interest in such funds has traditionally been strong. In India, international themes gained momentum last year among sophisticated and wealthy investors, resulting in the launch of various global fund of funds, whose assets rose more than 3.5 times in 2020. In Korea, cross-border funds’ assets were estimated to have tripled between 2017 and 2020, amid sluggish growth in the domestic market. In Southeast Asia, Greater China funds have gathered steam due to the positive outlook on the country’s economic recovery.
“The increasing number of cross-border connectivity schemes, combined with other regulatory measures, should expand the variety of offshore products available in the local markets. But while such initiatives are promising, they will take time to mature and hence, Cerulli believes their growth will be gradual and steady,” said Ken Yap, managing director, Asia, at Cerulli Associates.
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