A few major trends evolved in the fund industry this year, and some of them may have important implications for the coming year.
1. Northbound funds have registered sales that are 80 times those of southbound funds. To a large extent, this is due to China’s policy to stem fund outflows amid the yuan’s depreciation. Measures like a daily limit on individuals’ outbound investments would continue to carry a strong impact next year. International insurers would also continue to suffer from rules restricting the purchase of policies abroad.
2. The long-awaited Shenzhen-Hong Kong Stock Connect has failed to bring much boost. Instead, stock prices weakened as China stems capital outflow.
3. Donald Trump’s victory has stimulated old-economy stocks as it’s widely expected that his administration would loosen controls on financial institutions. Also, expectations of better US growth and faster rate increases will also benefit financial and banking stocks.
4. The financial market has encountered a number of black swan events. Numerous hedge funds reported losses due to huge market swings, making it increasingly hard for them to justify their hefty fees. The probe into Platinum Partners, which allegedly forged the valuation of its funds, added to the negative publicity of the hedge fund industry. Numerous institutional investors have switched to index funds, dealing the sector a huge blow.
5. Amid falling interest rates, mainland insurance firms have been actively seeking returns, and some resorted to aggressive purchase of stocks in large stakes with money funded by short-term policy. Worried about such risky practices, regulators suspended related operations of several insurers.
6. A few small and medium-cap stocks have posted sharp price fluctuations after getting listed on the Growth Enterprise Market. To protect investors from potential losses, the Securities and Futures Commission issued a consultation paper with suggestions on how to reform the listing approval process. The reforms will have a crucial impact on Hong Kong’s financial hub status.
7. Due to their cost effectiveness and transparency, exchange-traded funds have become very popular. Hong Kong has been catching up by launching leveraged and inverse ETFs to provide the market with more choices.
This article appeared in the Hong Kong Economic Journal on Dec. 30.
Translation by Julie Zhu
[Chinese version 中文版]
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