(BEIJING) China announced new draft rules on Friday on inbound portfolio investments, increasing the amount some institutions can invest in the country’s stock markets, in a move likely to bolster market sentiment.
The upward limit for individual institutions’ quotas under the qualified foreign institutional investor (QFII) programme will be raised to US$1 billion from US$800 million under the draft rules, the State Administration of Foreign Exchange (Safe) said.
The agency also said it would reduce the lock-up period for insurance funds, pension funds and open- ended China funds to three months from the one-year requirement others must follow.
Hong Kong’s Hang Seng Index soared after the announcement on hopes of bigger capital inflows into China, ending up nearly 3 per cent. The Shanghai stock exchange had closed up 0.6 per cent before the news.
The move comes after a sharp drop in Shanghai shares in August amid growing concerns about a drop in Chinese bank lending, but some analysts saw it more as part of the regulator’s overall efforts to gradually open the capital account.
Andrew Sullivan, a sales trader with MainFirst Securities in Hong Kong, said increasing the quota would not have a huge impact on the stock market.
Only large QFII investors such as UBS have a full US$800 million quota, while the majority currently have quotas of less than US$200 million, Mr. Sullivan noted.
‘There is quite a bit of additional quota available,’ he said.
The agency also lowered the minimum required quota to US$20 million from the original US$50 million, opening the scheme up to smaller institutions.
The overall investment quota of US$30 billion will remain intact, as only about US$15 billion of that amount has been used so far, Chu Yumei, an official with Safe, told a news conference.
It was only in 2007 that Safe raised the overall limit from US$10 billion to US$30 billion. The programme was formally launched in 2002.
‘Although the total holdings of QFII investors amount to only a small fraction of the A-share market, these liberalisations (and potentially an accelerated pace of approvals) may signal official efforts to stabilise the domestic equity market,’ Jing Ulrich, chairman of China equities with JPMorgan, said in a note.
Nick Scott, chief investment officer for Asian equities at BlackRock, one of the world’s biggest asset managers, told Reuters in an interview the move was a sign Beijing does not want asset prices to fall too much.
The announcement on inbound investments followed a statement earlier this week by Safe promising to give domestic investors more channels for outbound investment under the qualified domestic institutional investor (QDII) scheme.
It was followed later on Friday by the securities regulator’s approval of an initial public offering by China National Chemical Engineering Co, dousing rumours it had put new offerings on hold.
Worries over too many new share supplies were another part of the reason behind the fall in share prices in August.
Safe will be seeking market feedback on the rules until mid-September, but such rules are typically very close to their final state before being published in draft form.
The agency said it would also try to ensure the institution that applies for a particular quota is the one that uses it and will crack down on illegal transfers or trading in quotas.
Responsibility for approving QFII return remittances has been passed to local Safe offices from the central office, it said.
It will also allow QFIIs to set up separate accounts for their own proprietary investments and for open- ended China funds; previously they were combined in one.
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China relaxes rules for inbound investment
Individual QFII quota limit up, minimum lowered; overall quota to stay intact
Reuters
07 September 2009
(BEIJING) China announced new draft rules on Friday on inbound portfolio investments, increasing the amount some institutions can invest in the country’s stock markets, in a move likely to bolster market sentiment.
The upward limit for individual institutions’ quotas under the qualified foreign institutional investor (QFII) programme will be raised to US$1 billion from US$800 million under the draft rules, the State Administration of Foreign Exchange (Safe) said.
The agency also said it would reduce the lock-up period for insurance funds, pension funds and open- ended China funds to three months from the one-year requirement others must follow.
Hong Kong’s Hang Seng Index soared after the announcement on hopes of bigger capital inflows into China, ending up nearly 3 per cent. The Shanghai stock exchange had closed up 0.6 per cent before the news.
The move comes after a sharp drop in Shanghai shares in August amid growing concerns about a drop in Chinese bank lending, but some analysts saw it more as part of the regulator’s overall efforts to gradually open the capital account.
Andrew Sullivan, a sales trader with MainFirst Securities in Hong Kong, said increasing the quota would not have a huge impact on the stock market.
Only large QFII investors such as UBS have a full US$800 million quota, while the majority currently have quotas of less than US$200 million, Mr. Sullivan noted.
‘There is quite a bit of additional quota available,’ he said.
The agency also lowered the minimum required quota to US$20 million from the original US$50 million, opening the scheme up to smaller institutions.
The overall investment quota of US$30 billion will remain intact, as only about US$15 billion of that amount has been used so far, Chu Yumei, an official with Safe, told a news conference.
It was only in 2007 that Safe raised the overall limit from US$10 billion to US$30 billion. The programme was formally launched in 2002.
‘Although the total holdings of QFII investors amount to only a small fraction of the A-share market, these liberalisations (and potentially an accelerated pace of approvals) may signal official efforts to stabilise the domestic equity market,’ Jing Ulrich, chairman of China equities with JPMorgan, said in a note.
Nick Scott, chief investment officer for Asian equities at BlackRock, one of the world’s biggest asset managers, told Reuters in an interview the move was a sign Beijing does not want asset prices to fall too much.
The announcement on inbound investments followed a statement earlier this week by Safe promising to give domestic investors more channels for outbound investment under the qualified domestic institutional investor (QDII) scheme.
It was followed later on Friday by the securities regulator’s approval of an initial public offering by China National Chemical Engineering Co, dousing rumours it had put new offerings on hold.
Worries over too many new share supplies were another part of the reason behind the fall in share prices in August.
Safe will be seeking market feedback on the rules until mid-September, but such rules are typically very close to their final state before being published in draft form.
The agency said it would also try to ensure the institution that applies for a particular quota is the one that uses it and will crack down on illegal transfers or trading in quotas.
Responsibility for approving QFII return remittances has been passed to local Safe offices from the central office, it said.
It will also allow QFIIs to set up separate accounts for their own proprietary investments and for open- ended China funds; previously they were combined in one.
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