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Report: China regulator halts mutual funds' investment in Hong Kong

China's securities regulator will no longer approve new mutual funds that are investing most of their portfolio in Hong Kong's equity market amid concerns that the city's key stock benchmark has risen too quickly to a decade-high, the South China Morning Post reported Nov. 27, citing "two state-owned funds familiar with the matter."

The regulator will only approve funds that allocate less than half their portfolio to Hong Kong, the funds said, citing an order from the China Securities Regulatory Commission, or CSRC. Funds that plan to allocate more than 80% of the portfolio to Hong Kong stocks will no longer be approved for sale in China.

The CSRC's latest instruction reflects concerns among Chinese policymakers over the risks in the Hang Seng Index's rapid rise, particularly since the city's market does not have the 10% limit-down circuit breaker found in the stock markets of Shanghai and Shenzhen to limit single-day losses. The introduction of stock connect schemes, which linked the Shanghai and Shenzhen markets to Hong Kong, had increased investments in Hong Kong stocks from Chinese funds. Chinese funds invested HK$808.8 billion in Hong Kong stocks as of Oct. 31, up 60% from 2014.