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Chinese savers who want a piece of Nvidia stock no longer necessarily need an offshore brokerage account. Increasingly, they can buy it through a fund approved by Beijing. That distinction is becoming important as China’s households search for somewhere to put the cash they accumulated during the property bust. Deposit rates at the country’s biggest banks have fallen below 1% for a one-year term, while authorities are simultaneously cracking down on unlicensed routes used by mainland investors to trade overseas. The result is an unusual compromise: Beijing is tightening enforcement around offshore trading in some places while widening regulated channels that give Chinese investors exposure to U.S. stocks, Treasuries, gold and other global assets. Few funds illustrate the shift better than Pictet Strategic Income. The Hong Kong-domiciled fund has grown to $5.1 billion from $1.6 billion at the start of this year. Roughly 60% of its assets now come from mainland Chinese retail investors through the Mainland-Hong Kong Mutual Recognition of Funds program. In the first half alone, the fund attracted HK$16.3 billion ($2.1 billion), in net mainland inflows, the most among 34 funds tracked by Morningstar. An August portfolio update showed top holdings including U.S. Treasuries and gold, as well as Amazon.com, Alphabet and Nvidia. The fund returned 17% through August after gaining 18% last year. Those numbers are still small beside China’s enormous pool of household savings. Chinese households added another 6.99 trillion yuan to bank deposits in the first eight months of this year, according to the People’s Bank of China. But the direction of travel matters. At the five biggest state-owned banks, the posted rate on a one-year deposit is just 0.95%. That has helped create what Chinese financial media call “deposit migration”: money moving from bank accounts into funds, insurance products and other investments. The migration is hardly a stampede. Most household money remains in deposits, and Chinese investors have generally stayed cautious after years of property losses and uneven stock-market returns. What is changing is the menu. The Mutual Recognition of Funds program has existed since 2015, allowing eligible Hong Kong funds to be sold on the mainland and vice versa. But Beijing and Hong Kong substantially expanded it last year. Beginning in January 2025, regulators raised the maximum share of a Hong Kong fund that can be sold to mainland investors to 80% of assets from 50%, effectively tripling the potential mainland sales capacity for qualifying funds. The timing now looks prescient. In May, eight Chinese agencies launched a two-year campaign against what they called illegal cross-border securities, futures and fund activity. Regulators have targeted overseas brokers that solicited mainland customers without Chinese licenses, including Tiger Brokers, Futu and Longbridge. Yet the China Securities Regulatory Commission made clear that the goal was not to eliminate overseas investing. The campaign, it said, would help “guide investors to conduct overseas investment through legal channels.” That is the opportunity for global asset managers. Qualified Domestic Institutional Investor funds, or QDII funds, have long provided mainland investors with overseas exposure, but quotas and subscription limits frequently constrain supply. Mutual-recognition funds offer another route, and firms with Hong Kong-domiciled products now have a potentially much larger mainland customer base. Morningstar data show the demand is broader than one Pictet fund. JPMorgan’s Asia Equity High Income fund collected HK$4.4 billion in the second quarter, while its Pacific Technology fund drew HK$2.86 billion. Pictet has said it plans to seek approval for two more mutual-recognition funds. For investors outside China, that creates several winners. Global asset managers gain access to one of the world’s largest pools of savings. Hong Kong banks and distributors get a bigger role as the bridge between mainland households and global markets. And incremental Chinese demand can flow, indirectly, toward U.S. Treasuries, gold and large American technology companies. There is a limit to the story. Beijing still controls the size and shape of the pipes, and the money entering these funds is nowhere near large enough to represent a wholesale flight from Chinese assets. But that may be precisely the point. China’s savers increasingly want global diversification. Beijing appears willing to give it to them—as long as the money travels through a door it can see. Write to editors@barrons.com
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