Saturday 25 October 2008

QDII funds bleed on heavy redemptions by jittery investors

The mainland’s overseas equity-based funds have seen their businesses beaten by the global stock market rout amid heavy cash withdrawals by investors in the third quarter.

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Guanyu said...

QDII funds bleed on heavy redemptions by jittery investors

Daniel Ren in Shanghai
25 October 2008

The mainland’s overseas equity-based funds have seen their businesses beaten by the global stock market rout amid heavy cash withdrawals by investors in the third quarter.

A qualified domestic institutional investor product launched by Fortis Haitong in June saw a net redemption of 76 per cent in the quarter, while Fortune SGAM Fund Management’s QDII fund recorded a net redemption of 52 per cent, their quarterly reports show.

“The QDII investors are in open revolt,” said Zhou Liang, the head of the China investment and advisory division at Thomson Reuters. “The global financial meltdown has led to a dead QDII market.”

To date, 10 QDII products managed by mainland fund houses are invested in overseas equities.

Quarterly reports by seven of the funds say they lost a combined net asset value of 15.9 billion yuan (HK$18 billion), or 16.9 per cent of the total, in the quarter to September.

The heavy redemptions in the past quarter were in a stark contrast to robust sales last year, when any QDII products were snapped up by investors on the first day of sale.

In the third quarter, China International Asia Pacific Advantage Fund, managed by China International Fund Management, recorded a 22.8 per cent loss in net asset value.

The China AMC Global Selection Fund operated by China Asset Management lost 16.9 per cent.

Last year, Beijing allowed funds to offer QDII products in yuan and convert them to foreign currencies before they bet on overseas markets, a move to direct money outflow as the nation sought to contain soaring inflation.

Amid a frothy A-share market, investors flocked to the QDII products. They believed overseas stocks, particularly those of mainland companies listed in Hong Kong, would bounce because the gap between A and H shares would eventually close.

Meanwhile, the 396 A-share mutual funds lost 274.9 billion yuan or 33 per cent of their net value in the third quarter in tandem with a 16.2 per cent drop in the Shanghai Composite Index, TX Investment Consulting said.

At the end of last month, the funds put aside 63.6 per cent of their capital for stock investment, down 2.27 percentage points from three months ago.