It will soon be one year since the government started a mutual recognition of funds program between the Chinese mainland and Hong Kong. Hong Kong has fewer products than the Mainland but the investment is overwhelmingly heading south.

Since the mutual recognition of funds program was kicked off in July 2015, 23 mainland fund products have gone on sale in Hong Kong, while only six Hong Kong funds sell on the mainland. The sales results present an entirely different picture, however. As of the end of March, Hong Kong investors had purchased only 45 million yuan worth of Mainland funds, but Hong Kong received 700 million yuan from mainland investors. Why is that?

The need for mainland investors to invest overseas has become bigger and bigger. That's why funds products from Hong Kong are very attractive to mainland buyers. However, on the flip side, there are many choices for Hong Kong investors to putting their money into the mainland, like RQFII, or the China Equity Fund. Also, the A share market had huge fluctuations in the second half of last year, and some HK investors think there are still some uncertainties in policy-making. So they are reluctant to move now.

Also making it attractive, the Hong Kong stock market has outperformed A-shares by ten percentage points this year. Moreover, the Qualified Domestic Institutional Investor program, or QDII, which allows Mainland investors to move assets abroad, had sold out almost its entire quota by the end of March. That means Hong Kong mutual funds have become a good alternative for mainland investors with a big appetite. One analyst told us that when the MRF was being negotiated, however, many thought the money flow would be in just the opposite direction.

When the program was under discussion, it was targeted at Hong Kong, though there was the hope it would create a two-way capital flow. At that time, many expected more Hong Kong money would want to come to the mainland because the A shares were on a good rise from the end of 2014 to mid 2015. So Hong Kong's interest in investing in the mainland was more urgent. However, it was designed to be a two-way street.

However, analysts remain optimistic about the MRF. It's estimated that more than 800 funds on the mainland are qualified to sell in Hong Kong, and more than a hundred funds set up in Hong Kong can come onto the mainland.