THE mainland and Hong Kong have approved the first funds to be marketed under a long-awaited cross-market program, but unfortunate timing, lack of variety and the growth of alternative investment options have taken the sheen off the initiative.

    The China Securities Regulatory Commission and Hong Kong Securities and Futures Commission on Friday said seven funds could be marketed in Hong Kong and on the mainland under a “mutual recognition of funds” program three years in the making.

    The program has been hailed as the latest milestone in the opening-up of China’s financial markets by allowing global asset managers to tap into Chinese mainland household savings via funds set up in Hong Kong.

    But the approved funds all invest client money in shares and bonds in Asia and China in particular, where the benchmark share price index fell 34 percent over June to October. The MSCI Asia-Pacific (ex-Japan) index has also lost 13 percent this year and is widely expected to fall in 2016 as factors such as economic slowdown in China dampen investment in the region.

    “Interest in the mutual recognition of funds will be curbed at the beginning as the stock markets in both Hong Kong and on the mainland are hovering around low levels and lack upward momentum,” said China chief economist Liao Qun at Citic Bank International. “Investors have concerns about each other’s market as they are not familiar with it.”

    The funds’ appeal has also been dulled by other new cross-market programs such as the Hong Kong-Shanghai stock connect, where shares can be traded on each other’s exchange, as well as relaxation to other programs that allow domestic institutions to put money into overseas stocks and bonds.

    Mainland and Hong Kong securities regulators began discussing mutual fund recognition in 2012 but later prioritized the stock connect program. The funds program formally started in July this year but with mainland share prices in free-fall, market participants had to wait another five months before four mainland and three Hong Kong funds became the first of 47 applicants to gain approval.

    (SD-Agencies)