Mainland Chinese investors on average are looking at 13 per cent annual returns from their investments under the Wealth Management Connect initiative, a level deemed as too high given the restrictions, according to a survey by the Hong Kong Investment Funds Association.
To achieve such high returns, mainland investors will have to invest in products with medium-to-high risk levels that have a higher exposure to equities, HKIFA chairman Nelson Chow told a media briefing to discuss the survey on Tuesday.
However, the impending scheme allows mainland investors to only invest in about 300 Hong Kong-domiciled funds with low to medium risks with exposure to bonds and large cap stocks.
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"We hope the authorities will relax the Wealth Management Connect scheme in the future to allow investors to invest in products with different risks levels to fit their risk appetite," Chow said. It's "very difficult" to achieve 13 per cent without assuming more risks, he added.
Mainland investors on average can tolerate losses of up to 8 per cent per year under the connect scheme, the survey found. Last year, the Hang Seng Index lost 3.4 per cent following a gain of 9.1 per cent in 2019.
Some 1,000 residents living in the four Greater Bay Area mainland cities of Guangzhou, Shenzhen, Foshan and Zhuhai were asked about their views on investing in the new connect scheme between April and May.
Beijing unveiled the wealth management link for the Greater Bay Area a year ago, after successful experiments with stock and bond trading on the Hong Kong, Shenzhen and Shanghai exchanges. The new scheme will allow Hong Kong and Macau residents to buy mainland investment products sold by banks in the Greater Bay Area. Likewise, residents of the nine cities in southern Guangdong province will also be allowed to buy investment products sold by banks in Hong Kong and Macau.
"The Wealth Management Connect is the next big thing for Hong Kong's fund industry," Chow said. "It allows Hong Kong fund companies to capture a market with a population of 70 million, 10 times the size of Hong Kong."
Elisa Ng, vice-chairwoman of HKIFA's unit trust sub-committee, said fund companies in Hong Kong were actively preparing for the launch of the scheme and were working with banks on the products' distribution.
The HKIFA survey found that new energy, biotechnology and internet were the top three sectors favoured by mainland investors. Some 63 per cent said they would like to invest in new or renewable energy, followed by 57 per cent in biotechnology and 48 per cent in internet-related stocks.
Banking and finance, traditionally favoured by investors, ranked fourth at 34 per cent. Industrial and retail were the least preferred sectors at 14 per cent and 13 per cent, respectively.
Hong Kong ranked as the respondents' number one market under the new scheme. Around 66 per cent said they would like to invest in products in the Hong Kong market, followed by 37 per cent in Asia excluding Hong Kong and China.
The survey also showed over 90 per cent considered dividend payments to be important in the funds they invest in.
Meanwhile, 74 per cent of respondents said they had no interest in investing in products focusing on environmental, social and governance as they found these products to be unattractive and expected low returns.
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