By Alwyn Li
Since the launch of the first Renminbi (RMB) denominated fixed income fund in mid-2010, we have seen a number of developments. So far, RMB denominated funds that have been authorised for sale to the public in Hong Kong are primarily regulated by the Securities and Futures Commission (SFC). At the outset, RMB denominated funds could only offer units denominated in RMB and the underlying investments were entirely denominated and settled in RMB.
As the RMB market opens up and more RMB related investments become available, we have seen a number of relaxations and new developments. Towards the end of 2011, RMB denominated funds were able to start offering classes of units denominated in other major currencies, such as HKD and USD. In addition, in early 2012, the permissible investments for RMB denominated funds were expanded to allow an RMB denominated fund to invest a limited portion of its assets in non-RMB denominated investments. At least 70% of an RMB denominated fund's assets are still required to be invested in assets denominated and settled in RMB.
UCITS funds offered in Hong Kong may now offer RMB denominated share classes on a private placement basis or to professionals only. The offering documents must state clearly that the RMB denominated share classes are not available to the public in Hong Kong. Before launching an RMB share class for an SFC authorised fund, the product issuer will first need to consult the SFC. According to item 27B of the SFC's FAQ on the Code of Unit Trusts and Mutual Funds, the SFC should be consulted before a fund manager launches a new share class which is denominated in a restricted currency. In particular, RMB was named as an example of a restricted currency. The FAQ is available from the SFC website: http://www.sfc.hk/sfc/doc/EN/faqs/products/FAQs%20on%20UT%20Code%20 (Final%20Q24)(Last%20updated%2028%20June%202012)%20(2).pdf
Although RMB funds are still at a developing stage, the number of RMB products available for investment has increased significantly with the launching of RMB denominated RQFII ETFs as well as an increasing number of RMB fixed income funds (both RQFII fixed income funds and Dim Sum Bond fixed income funds) and an RMB denominated REIT.
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