x Abu Dhabi, UAEMonday 24 July 2017

China completes allotment of capital market quotas for foreign investors

China has completed allotting up 70 billion yuan in quotas for foreign institutional investors to put offshore yuan holdings into its capital markets.

China has completed divvying up 70 billion yuan in quotas for foreign institutional investors to put offshore yuan holdings into its capital markets, raising expectations that details of the next huge tranche of 200 billion yuan will be announced soon.

Four Chinese asset managers were granted a total of 3bn yuan in quotas last month under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme by China's State Administration of Foreign Exchange.

E Fund and China Asset Management were each awarded 1bn yuan quotas. Harvest Global Investments received a 350 million yuan quota and Huatai Financial Holdings was granted 650m yuan.

China introduced the RQFII scheme with an initial quota of 20bn yuan at the end of 2011, with each firm involved allowed to put no more than 20 per cent in the onshore stock market while the remainder was to be invested in fixed income.

The quota was raised by 50bn yuan last April, with the entire amount to be invested in the stock market through exchange-traded funds (ETFs).

During the past few months, foreign investors seeking higher returns under a low interest rate environment flocked to RQFII products, especially ETFs, exhausting the quotas at a faster pace.

"I believe details of the new quotas will come out very soon, maybe just after the Chinese New Year," said Ben Kwong, the chief operating officer at securities house KGI Asia.

He said investors are now very interested in the mainland stock market, given that its performance lagged other markets in the past few years but saw a strong rebound recently, which seems like a good investment opportunity to some.

The sharp rebound in the mainland A-share market has reignited hopes for a further rally as the world's second-largest economy shows signs of regaining momentum.

Guo Shuqing, the head of the China Securities Regulatory Commission, said in November that the RQFII quota would be raised by a further 200bn yuan, although he gave no specifics on who would get the quota or what products could be purchased.

Fund managers involved in the programme, however, have called for greater flexibility on products, to attract more investors.

"It would be ideal if the government only controls the quota for offshore yuan to flow back to the onshore capital market, but lets us design different kinds of products ourselves," said a portfolio manager in Hong Kong.

Foreign financial institutions are also expected to benefit from the enlarged quota since the first two tranches were mainly distributed among Chinese fund houses and brokerage firms.

 

* Reuters