Beijing clarifies offshore trust tax rules, exempting Hong Kong MPF accounts

Mainland Chinese mutual funds investing overseas have shown contrasting results this year, with energy and US stock-linked products leading, while Hong Kong equity funds lagged. Energy-linked funds topped the chart under the Qualified Domestic Institutional Investor (QDII) program, reflecting a 50% rise in crude oil prices in 2026 due to US strikes on Iran disrupting oil supplies.

Mainland Chinese QDII funds targeting US, South Korean, and Japanese stocks also ranked among the best performers, driven by strong economic growth and a boom in artificial intelligence infrastructure buildouts. Benchmark indices in these three countries have risen by at least 10% this year. Conversely, Hong Kong stock-tracking funds, especially those invested in mainland Chinese technology companies, were the worst performers, with the Hang Seng Index down over 4% and the Hang Seng Tech Index falling about 25% due to concerns over the earnings outlook for e-commerce-based internet platforms.

Most QDII products are passive ETFs tracking single asset class indices, remaining popular with mainland Chinese investors due to their appeal for overseas assets outperforming yuan-denominated stocks. The total size of QDII funds reached 1 trillion yuan (US$150 billion), constituting 2.5% of China's mutual fund industry. However, Beijing's restrictions on overseas investment by domestic investors, through the QDII program and the Stock Connect scheme, led to some sought-after funds trading at significant premiums to their net asset values, causing trading suspensions and risk warnings this year.

Beijing added nearly US$7 billion in new QDII quotas in August. Among the top performers was the China Southern Crude Oil Securities Investment Fund, a 1.5 billion yuan fund investing in global oil ETFs and energy stocks, delivering an 84% return this year. Other top performers included two similar oil funds managed by E Fund Management and Harvest Fund Management, with gains of 81% and 78% respectively.

A semiconductor fund managed by Huatai-Pinebridge Fund Management, holding major South Korean memory chipmakers, gained 27%. Analysts suggest that enthusiasm for QDII funds might wane in the coming months due to sustained diplomatic efforts to ease Middle East tensions reducing oil prices and concerns over tighter US regulation of AI, potentially slowing industry expansion.