Custodian issues are preventing foreign funds from investing in A shares under the Shanghai-Hong Kong Stock Connect program, the Hong Kong Economic Journal reported Monday.
Mutual funds from the United States and Europe and those with joint ventures in China are reluctant to invest in mainland stocks because of a policy that requires short sellers to deposit their holdings in a domestic brokerage that will act as a custodian.
The requirement is at odds with regulations in certain overseas markets.
Once the issue is resolved, more foreign players will join the fray, the report said, citing Yang Qiumei, chief executive of Investment Company Institute Global Asia Pacific.
Some overseas mutual funds use their Hong Kong units or go through China’s foreign institutional investor scheme to bypass the requirement.
But this has only given them limited access to the Hong Kong-Shanghai cross-border stock trading link which has recently allowed short selling.
Regulators on both sides have been working on the custodian issue but no consensus has been reached, Yang said.
US funds held US$133.8 billion worth of Chinese stocks at the end of last year, 63 percent through H shares or American depositary receipts and the rest through the qualified foreign institutional investor scheme.
Only one US mutual fund had invested in A shares via Shanghai-Hong Kong Stock Connect at the end of 2014, the report said.
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