ASSET managers in Hong Kong are scrambling to figure out how to meet growing demand for yuan assets after they were hit by a double blow — a shortage of mainland investment quotas and the delay of a program linking the Hong Kong and Shanghai stock exchanges.

    Money managers in the world’s biggest offshore yuan hub are still waiting for new quotas after they were nearly exhausted in late September, even as the mainland is accelerating its pace of granting quotas to London, Singapore and Paris under its RQFII (Renminbi Qualified Institutional Investor) program.

    China’s State Administration of Foreign Exchange (SAFE) allocated a total of 11.1 billion yuan (US$1.81 billion) in RQFII quotas to foreign investors outside of Hong Kong in October, official data showed. The Asian financial center got none.

    It’s unclear why the mainland has not approved a fresh quota for Hong Kong, but market participants guess mainland regulators may want them to make full use of the existing quota and wait to announce a new quota until the Hong Kong-Shanghai stock connect program is ready, to ensure a successful launch.

    The stock connect or “through-train” program is a landmark project to connect the equity markets in the two cities. It would allow global investors to trade mainland shares via Hong Kong for the first time, while giving mainland investors access to Hong Kong-listed stocks.

    It had been expected to begin trade Oct. 27, but appears to have run into regulatory and possibly technical delays.

    “To be honest, it’s a bit challenging for CSOP because we have used about 97-98 percent of our quota. We sort of hoped to use the through-train but it was delayed,” said Jack Wang, chief marketing officer at CSOP Asset Management in Hong Kong.

    CSOP is the biggest RQFII player in Hong Kong, with an aggregate quota of 46.1 billion yuan, accounting for nearly one-fifth of the 270 billion yuan quota the city was granted.

    The firm’s exchange-traded fund (ETF) that tracks the FTSE China A50 Index and allows investors to have exposure to the top 50 companies on the mainland has been popular among investors who want to hold yuan assets.

    “What we are doing now is whenever there is some free quota from redemptions or some of the funds are not very suited to the market, we move the quota to products that are more suitable to the market,” Wang said.

    Money managers had banked on the Shanghai-Hong Kong stock connect program to offer a new channel to enter China and thus release some quota for RQFII products. Now, however, they have to find other alternatives due to the delay.

    “We still have around 3-4 billion yuan RQFII quota as a buffer for the short term,” said Freddie Chen, head of sales at China Asset Management (Hong Kong), which saw more than 80 percent of its 21.8 billion yuan quota used up or reserved for new products.

    Similar to what CSOP is doing — transferring quotas among different products — China Asset Management also switched part of its RQFII quota for the CSI 300 ETF to another new offshore ETF recently.

    “We are also considering making use of foreign partners’ quota, if they can also apply for quota themselves, as a potential option if new RQFII quota and stock connect takes longer to come out,” Chen said.

    Chinese financial institutions have started to cooperate with foreign partners to have their products listed in Europe and the United States to attract investors, but so far these products all rely on the Chinese firms’ quota. (SD-Agencies)