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Circuit breaker brings disruption to HK, China fund sales

Taylor Hui, investment funds partner, was recently interviewed by Ignites Asia, a Financial Times publication, regarding a newly implemented circuit breaker that caused the Shanghai and Shenzhen stock markets to shut down an hour and a half early.

According to the report, as stocks fell 7% in Shanghai and more than 8% in Shenzhen by the afternoon trading session on Monday, China Asset Management Company (ChinaAMC) decided to cancel all subscriptions and redemptions for its ChinaAMC Return Securities Investment Fund and ChinaAMC Xinghua Mixed Securities Investment Fund made in Hong Kong before the circuit breaker was activated, and then it suspended sales and withdrawals for the funds until the following day.

These two mainland-domiciled funds were approved for sale in Hong Kong under the Mainland-Hong Kong Mutual Recognition of Funds (MRF) on December 18 and December 30, respectively.

Taylor commented that under MRF regulations, Hong Kong and mainland investors should in theory be treated equally for funds sold in both markets; however, differences in distributors’ processing capabilities may end up causing some differences in fund house approaches when dealing with the circuit breaker.

Whether the fund managers decide they are going to cancel the whole day’s actions or decide there is leeway in accepting some subscriptions or redemptions really depends on whether the distributors have the ability to segregate exactly which investments came in before the cut-off time of the circuit breaker, said Taylor.

MRF was the most significant event for the funds industry in Hong Kong. Deacons has advised on 12 out of the first 13 mainland domiciled funds authorised for public sales in Hong Kong to date. 

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