【Mutual Recognition Funds】Northbound Funds Accumulate Net Purchase Amount of 126 Billion Yuan, Morgan Leading with 8.4 Billion Yuan in Asset Inflows

▲ Northbound and Southbound Funds Both Show a Strong Start

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The Chinese yuan has regained strength, leading to a positive start for the mutual recognition funds between China and Hong Kong. In January, both Northbound and Southbound funds saw a shift from decline to growth in their capital inflows. Data from the State Administration of Foreign Exchange shows that as of the end of January, the net subscription amount for Northbound funds (funds sold by Hong Kong fund companies in mainland China) reached 126.02 billion yuan, up from 125.19 billion yuan at the end of last year, an increase of 8.25 billion yuan or 0.6%, reversing the decline seen in December.

Last year, a new mutual recognition fund arrangement was introduced, allowing qualified mainland and Hong Kong funds to sell in each other’s markets through simplified approval processes. This initially boosted investment quotas to 300 billion yuan each for cross-border capital flows.

Furthermore, the sales cap ratio for mutual recognition funds between China and Hong Kong was increased threefold, sparking a surge in sales in the first quarter of 2025. However, from the second quarter onward, momentum waned, and sales growth slowed significantly. Nonetheless, the total annual inflow still rose sharply by 82.5 billion yuan, a 1.9-fold increase.

Southbound Funds End Six-Month Decline, Capital Inflows Rebound Above 700 Million

Meanwhile, Southbound funds—mainland funds selling flagship products in Hong Kong—finally showed signs of recovery, ending a six-month decline. In January, net subscriptions totaled over 700 million yuan (actual figure: 701 million yuan), up from 677 million yuan at the end of last year, an increase of 23.6 million yuan or 3.4%.

Last year, Southbound funds decreased by 196 million yuan from 874 million yuan at the end of 2021, a 22% drop.

Since January 2024, when net inflows fell below 1 billion yuan, the decline has continued. In July of the previous year, it fell below 900 million yuan, and a year later, it even dropped below 800 million yuan, with November seeing inflows fall to 700 million yuan.

Cross-border mutual recognition funds launched in July 2015, and the trend of “north hot, south cold” has persisted for over 10 years. Currently, Northbound funds attract 119.9 billion yuan more than Southbound products.

Looking ahead to 2026, with the yuan stable around 6.8, mainland capital is unlikely to rush into overseas products due to depreciation fears. However, given the high level of mainland residents’ savings—estimated at 50 trillion yuan in medium- and long-term deposits maturing this year—there remains strong demand for stable, conservative financial products.

Hong Kong Mutual Recognition Stock Funds Outperform Bonds in January

Additionally, amid expectations of rate cuts and the global stock market rally at the start of the new year, Morningstar’s analysis shows that in January, Northbound funds shifted from bonds to stocks, creating a “heaven and earth” scenario—“bonds cold, stocks hot.” Stock funds saw strong inflows, while bond funds experienced significant redemptions. The biggest winner in Q4 and the full year was Swiss Pictet Funds, which continued to top the “January inflow” rankings; however, it has yet to challenge the dominance of JPMorgan.

Morningstar (China) Research Center analyst Wu Yuening’s January report on Hong Kong mutual recognition funds (known as Northbound funds in Hong Kong) shows a market split: equity and mixed funds attracted capital, while bond funds experienced net outflows. Benefiting from steady gains in Asian and global stocks, equity and hybrid funds performed well. Conversely, bond funds saw net outflows due to increased risk appetite and restrictions on sales within mainland China.

In terms of market share, the top three remain unchanged: JPMorgan with nearly 84 billion yuan (over 40% market share), followed by HSBC (00005) and Harvest. Notably, Swiss Pictet jumped from sixth to fourth place, driven by continued strong sales of its flexible asset allocation funds.

Swiss Pictet Jumps to 4th Place

#Morningstar data shows the total assets under management (as of the end of January) for 11 Northbound fund companies:

● JPMorgan: 83.98 billion yuan

● HSBC: 30.09 billion yuan

● Harvest: 20.43 billion yuan

● Swiss Pictet: 16.44 billion yuan

● East Asia Fubon: 15.35 billion yuan

● Schroders: 13.99 billion yuan

● Bank of China Hong Kong (as of last year’s end): 7.19 billion yuan

● BNP Paribas: 5.39 billion yuan

● BOC Prudential: 4.28 billion yuan

● Hang Seng: 3.93 billion yuan

● UBS: 0.39 billion yuan

“JPMorgan Asia Dividend Fund” Attracts 3.9 Billion Yuan in January, Leading Stock Funds

On the other hand, hybrid funds are the most popular in terms of capital inflows.

Hybrid Funds: The top net inflow in January was the “Swiss Pictet Strategic Income Fund,” with 4.753 billion yuan, leading significantly. Its flexible allocation across global stocks and fixed income securities has outperformed similar funds over the past year, making it highly attractive. Other popular hybrid funds include “Schroder Asia High Yield Equity & Bond” with 649 million yuan and “HSBC Asia Multi-Asset High Income” with 409 million yuan, both gaining investor interest.

Stock Funds: Capital inflows remain steady, with many funds ranking among the top net inflows. The “JPMorgan Asia Dividend Fund” led with 3.909 billion yuan, focusing on high-dividend stocks in Asia-Pacific (excluding Japan), aiming to outperform the MSCI Asia Pacific (ex-Japan) total return index. Its holdings mainly include low-beta stocks, value stocks, and high-yield quality stocks, with returns significantly surpassing similar funds over the past year, attracting long-term, risk-averse investors.

Bond Funds: Overall, bond funds experienced net outflows, driven by increased risk appetite and restrictions on sales within mainland China. However, “East Asia Fubon Asia Strategy Bond Fund” bucked the trend, attracting 776 million yuan, ranking high among inflows.

January “Inflow King”: “Swiss Pictet Strategic Income Fund”

#Top 10 individual funds by net cash flow in January (Morningstar data):

● Pictet Hong Kong - Swiss Pictet Strategic Income Fund: 4.753 billion

● JPMorgan Asia Total Return Bond: 3.909 billion

● East Asia Fubon Asia Strategy Bond: 776 million

● Schroder Asia High Yield Equity & Bond: 649 million

● HSBC Asia Multi-Asset High Income: 409 million (restricted from mainland individual or institutional investors)

● East Asia Fubon Global Stocks: 390 million

● Harvest High Yield Equity Fund: 359 million

● JPMorgan Yian Hong Kong Fund: 298 million

● BOC Hong Kong - Global Stocks: 290 million

● JPMorgan Pacific Technology: 258 million

Additionally, reviewing fund company performance in January, Swiss Pictet’s sole hybrid mutual recognition fund demonstrated strong inflows, topping the net inflow rankings and leading the “Swiss pack.” JPMorgan’s various stock and bond funds showed mixed results but maintained strong overall capital attraction; East Asia Fubon’s equity and bond funds also performed well. Conversely, HSBC’s bond funds experienced net outflows, affecting its overall mutual recognition fund performance.

Overall, Morningstar notes that for funds exceeding 1 billion yuan, the market exhibits a “solid top tier, fierce mid-tier competition,” meaning the strong continue to get stronger.

Morningstar Reports HSBC Northbound Funds Net Outflows Over 2.4 Billion Yuan in January

Additionally, among the 11 mutual recognition fund companies, three experienced capital outflows due to redemptions.

#Top inflow companies in January (Morningstar data):

● Swiss Pictet: 4.753 billion

● JPMorgan: 1.768 billion

● East Asia Fubon: 1.012 billion

● Schroders: 649 million

● Harvest: 353 million

● Oriental HSBC: 315 million

● BOC Prudential: 285 million

● BOC Hong Kong (as of last year’s end): 32 million

● HSBC: net outflow of 2.404 billion

● Hang Seng: net outflow of 97 million

● UBS: net outflow of 11 million

Morningstar adds that the above data on cash flows and fund sizes are all at the fund level.

Citigroup Expert Liao Jiahao Predicts RMB to Rebound to 6.8 Within Six Months

As a supplement, market analysts believe that due to abundant liquidity, rising oil prices, and inflation, mainland China still has room to cut interest rates, so high-yield products remain popular to hedge inflation.

Goldman Sachs recently raised its inflation forecast for China, expecting the Consumer Price Index (CPI) to rise 0.8% year-on-year this year, higher than the previous estimate of 0.6%. Nomura also stated that recent strengthening of the RMB against the US dollar will not change monetary policy, with expectations of one policy rate cut and one reserve requirement ratio cut in the second quarter.

Since August last year, the RMB has appreciated by 4.83%. The People’s Bank of China lowered the foreign exchange risk reserve ratio for forward sales last Monday (March 2) to zero, with Governor Pan Gongsheng explaining it as a correction to market herd behavior.

Foreign investors interpret the central bank’s move as a cautious step to prevent excessive RMB appreciation, warning speculators betting on unilateral gains.

The RMB, which peaked near 6.826 in late February, fell to about 6.93 in early March, but remains strong, with major banks raising their exchange rate forecasts.

UBS notes that, based on trade-weighted indices, the RMB remains undervalued. Coupled with large trade surpluses, this will lead more companies and investors to continue selling dollars to buy RMB, raising onshore (CNY) forecasts to 6.8 in June (previously 6.9), 6.75 in September (previously 6.8), and 6.7 in December (previously 6.8). Citigroup’s investment strategist Liao Jiahao predicts the RMB will be around 6.9 in three months and between 6.8 and 6.9 over the next six months to a year, with a long-term target of 6.9.

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