Move to lift cap on foreign investment

PUBLISHED : Friday, 22 June, 2012, 12:00am
UPDATED : Friday, 22 June, 2012, 12:00am


Beijing plans to let select foreign institutions hold up to 30 per cent of a listed company, up from the current 20 per cent, in a move to encourage overseas investment in the beleaguered mainland stock market.

The China Securities Regulatory Commission (CSRC) has put out a draft rule to solicit public opinion, reiterating that it aims to facilitate the activities of qualified foreign institutional investors (QFIIs) as part of the process of opening up the equity market. The raising of the investment cap follows Beijing's decision to nearly triple the total quota for qualified foreign funds to US$80 billion earlier this year.

The proposal to raise the cap for QFII investments in a single listed company is aimed at giving foreign investors more freedom to buy shares in a firm they see as solid. The change is in line with CSRC chairman Guo Shuqing's remarks earlier this year that investment in the country's blue-chip stocks could generate an 8 per cent annualised return.

Separately, the CSRC also lowered the capital requirement for foreign investors applying for QFII status, in a bid to lure greater capital inflow. Financial institutions such as insurers and asset managers with assets under management of more than US$500 million will now be able to apply for the QFII quota, down from US$5 billion, the draft rule says.

The South China Morning Post on Tuesday reported that the entry barrier for global funds to invest in mainland-listed stocks would be lowered.

'The amount of money brought in by foreign investors is still very small, and accounts for only 1 per cent of the funds in China's stock market,' said Jing Ulrich, JPMorgan's chairman of global markets in China. 'So for the stock market to fundamentally improve its performance, we still need to improve the environment so that domestic investors can have confidence in it again.'

Beijing launched the QFII scheme in 2002, hoping foreign institutions would raise standards in the volatile market, where investors are driven more by rumours than valuations.

To date, Beijing has approved 170 global investors to trade A shares, granting them a total quota of US$25.19 billion. QFIIs can exchange a certain amount of foreign currency into yuan before buying the yuandenominated A shares. The Shanghai Composite Index, which lost 14.3 per cent in 2010 and 21.7 per cent last year, was among the world's worst-performing stock indices in the past two years. It lost 32 points, or 1.4 per cent, to close at 2,260.88 yesterday.