Beijing lets funds, brokers go abroad
Nevin Nie and Lee Yuk-kei
Regulator extends QDII foreign investments to securities firms and fund managers
Mainland securities firms and mutual funds have been allowed to invest abroad, as the securities regulator further loosens the purse strings on the nation's financial industry.
The China Securities Regulatory Commission announced yesterday that mutual fund management companies and brokerages could invest in stocks and other structured products overseas through the qualified domestic institutional investor scheme.
The mainland is trying to expand foreign investment and increase cash outflow as pressure mounts on its rising foreign exchange reserves and trade surplus.
Much of the investment is expected to flow to Hong Kong, where fund managers and brokers have the most knowledge.
The new rules are also a way to cool speculation in the domestic stock market by channelling funds overseas. Investors have been pushing stocks of low quality companies to record highs in recent months.
'This is very positive news for the Hong Kong stock market,' said Frank Gong, an economist with JP Morgan. 'Portfolio managers in the mainland are not familiar with many foreign markets and are more familiar with Chinese companies listed in Hong Kong.'
The CSRC did not specify the amount allowed to be invested under the extension of the scheme but said 'domestic institutional investors should set an appropriate size limit for their foreign funds based on the market environment and investment product characteristics'. They should also register and report regularly to the State Administration of Foreign Exchange on their fund investing.
The government is expected to allow insurers this year to invest overseas, after lifting the ban on overseas investment by banks.
The mainland launched the QDII scheme in June last year but received a cool response, partly because banks could offer only fixed-income related products from overseas markets.
While a QDII quota of about US$15 billion has been granted to banks, only 3 per cent has been used.
Brokerages and mutual funds will be allowed to invest in a variety of securities listed in foreign countries or regions whose supervisory authorities have signed a memorandum of understanding with the CSRC.
That includes the United States, Britain, Japan, Singapore, Australia, India, South Korea and 26 other jurisdictions. Hong Kong also has signed a similar memorandum, according to the CSRC website.
To invest overseas, securities companies must have net capitals of more than 800 million yuan and have been managing assets of not less than two billion yuan in the most recent quarter.
Mutual fund management firms should have net assets of at least 200 million yuan and have been managing assets no less than 20 billion yuan.
Both the Hang Seng Index and H-share index hit record highs yesterday amid the largest-ever turnover in Hong Kong of HK$121.45 billion.
The previous record was HK$101 billion which was set on Monday.