This brief commentary draws together examples across Asia to find a common theme of cross-border fund, capital and investment liberalisation. In some ways, this cuts against a narrative claiming that globalisation is reversing.

Asian countries are removing barriers to cross-border capital flows, paving the way to significant wealth and investment sector growth in the years ahead, according to Cerulli Associates, the research and analytics group. 

One of the most highly anticipated connectivity schemes is the Guangdong-Hong Kong-Macao Greater Bay Area Wealth Management Connect (WMC), which will offer residents access to wealth management products distributed by banks in the area, once rolled out. In addition, Shenzhen and Hong Kong launched a master-feeder exchange-traded fund link in 2020, with the first batch of four ETFs listed last October. 

Two new funds were added to the China-Japan ETF link in 2021, with the scheme having debuted in mid-2019. Another ETF cross-listing link will soon be rolled out between China and Korea, following an agreement in May 2021, the report noted.

Other supportive moves include India’s raising of each fund company’s investment limit in overseas ETFs from $50 million to $200 million, and the doubling of each fund manager’s offshore securities investment limit to $600 million last November. In Southeast Asia, the Philippines joined the ASEAN Collective Investment Scheme passporting framework in May 2021, and a Mutual Recognition of Funds scheme between Hong Kong and Thailand took effect the following month. Korea introduced the Asia Region Funds Passport scheme in May 2020, although the scheme has yet to approve its first fund.

To some extent the reforms mirror the cross-border liberalisations (with some caveats) seen in areas such as the European Union with its UCITS structures of funds that can be “passported” over national borders. (To what extent the UK’s departure from the EU interrupts this process, or not, remains a keenly debated topic.) The US has a large internal market of financial services, with state-level controls on banking and other financial services being eroded in recent decades.

Cerulli said growing appetite for foreign investments has been “witnessed throughout many Asian markets,” aside from Hong Kong and Taiwan, where retail interest in such funds has traditionally been strong. 

In India, international themes gained momentum last year among sophisticated and wealthy investors, resulting in the launch of various global fund of funds, whose assets rose more than 3.5 times in 2020. In Korea, cross-border funds’ assets were estimated to have tripled between 2017 and 2020, amid sluggish growth in the domestic market. In Southeast Asia, Greater China funds have gathered steam due to the positive outlook on the country’s economic recovery, the firm said.

“The increasing number of cross-border connectivity schemes, combined with other regulatory measures, should expand the variety of offshore products available in the local markets. But while such initiatives are promising, they will take time to mature and, hence, Cerulli believes their growth will be gradual and steady,” Ken Yap, managing director, Asia, at Cerulli Associates, said.