Yuan push may open door to fund market
Foreign fund houses expect greater access to the mainland market this year as Beijing moves to internationalise the yuan, fund managers say.
Stuart Leckie, chairman of Stirling Finance, an investment and pension consultancy, said mainland authorities recently sped up the licence approval process for overseas investors under the Qualified Foreign Institutional Investors (QFII) programme. To date, 142 QFII licences for overseas fund houses or banks to buy A shares have been approved.
While Beijing has not yet opened up capital markets, in 2002 it launched the US dollar-denominated QFII programme for selected international investment firms to invest in the A-share market under a quota system. Similar QFII schemes denominated in yuan introduced last December allowed the Hong Kong arms of mainland companies to invest offshore yuan funds in A shares or mainland bonds.
In April, the China Securities Regulatory Commission (CSRC) said it would increase the limit for investments under the US dollar-denominated QFII scheme by US$50 billion to bring the total to US$80 billion. The quota for investments under the yuan-denominated QFII scheme will rise by 50 billion yuan (HK$61.20 billion), to a total of 70 billion yuan.
The regulator has also sped up the approval process, with 54 new funds launched on the mainland in recent months, bringing the total to 969. Leckie said these measures showed Beijing was keen to promote growth in the market.
But he warned that mainland investors were too speculative.
'Unlike many Western markets, where investors like to invest in fund products for the long term, the mainland investors bet on newly launched funds like stocks to tap short-term gain,' Leckie said.
Leckie, who recently published a book, Investment Funds in China - A New Look, said the mainland fund industry had grown from zero in 1998 to its peak in 2007, but then declined because of weak mainland stock markets. The recent reforms would help the fund industry to bounce back and speed up internationalisation of the yuan, he said.
Since 2009, Beijing has brought in a range of measures to encourage people worldwide to use the yuan to settle trade and for selected investments. US-based BlackRock, the world's largest asset management company, also has a QFII quota.
Nick Good, BlackRock's Asia-Pacific head of strategy and business development, said: 'We're engaged with regulatory authorities on a number of issues, including QFII quotas, and our engagement with the authorities in China has been positive. We're confident there is significant investor demand for QFII quotas at the present time.'
US-pension and investment fund operator Principal Financial Group Asia president Rex Auyeung Pak-kuen said the company had been approved for a QFII licence.
'As we have noticed, the CSRC has made a few regulatory changes to promote a stronger compliance culture and is also making comments about the need for long-term investment products. All these are positive steps to encourage a stronger capital market,' Auyeung said.
'From Principal's perspective, we've always believed that the Chinese market is set for steady growth. The growth of the middle class and the continuous development in second-tier cities will bring opportunities for our businesses which are retail mutual funds and asset management and we have a joint venture with China Construction Bank,' Auyeung said.
The Hospital Authority Provident Fund Scheme, the second-largest pension fund in Hong Kong by asset size, received a QFII licence in January.
The number of licences granted for overseas fund houses or banks to buy A shares under the QFII scheme