Morningstar Inc., has issued a “C” grade to Hong Kong’s investment environment for funds, saying higher-than-average fees and poor disclosure in certain aspects have offset the merits of the city’s regulatory and tax regime.
The Chicago-based investment research and investment management firm said more competition triggered by the cross-border mutual recognition of funds will bring down charges and improve disclosure, the Hong Kong Economic Journal reported Monday.
Out of the 1,800-2,000 funds sold in the city, most are registered offshore, including in Europe, and charge fees much higher than the average 1.9 percent, said Morningstar Asia director of fund research Wing Chan.
The city was rated “D+” on fee levels and “C” on disclosure levels.
In contrast, it scored a “B” grade for its regulations and tax regime.
Almost half of the funds in Hong Kong make disclosures once every six months, and 10 percent disclose nothing at all.
About 71 percent of funds require initial subscription fees, which must be paid even if investors purchase the funds directly and not through consultancies.
Chan called on the industry to split the consultancy fee and initial subscription fee to improve the transparency of the pricing structure and reduce the incentive for financial advisers to charge high commissions.
Morningstar gave the United States and South Korea an overall grade of “A” and China a “D+”.
Sally Wong, chief executive of the Hong Kong Investment Funds Association, said it may not be appropriate to directly compare the fund environments of Hong Kong and the US, as their markets are different.
The association is seeking more distribution channels for Hong Kong funds, which now largely rely on banks to sell their products, Wong said.
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