Beijing approves new foreign securities fund

PUBLISHED : Saturday, 08 March, 2008, 12:00am
UPDATED : Saturday, 08 March, 2008, 12:00am

Beijing approved a new foreign institutional investor to buy mainland-listed securities after a one-year break, hoping to reassure investors that overseas demand for mainland assets is still strong.

But analysts said the move, part of efforts to buoy the troubled A-share market, would not pay off due to the small size of foreign funds.

Hu Xiaolian, the nation's top foreign currency regulator, said on Thursday that a government fund had been granted a licence to buy mainland securities under the qualified foreign institutional investor scheme, without identifying the investor.

Reuters reported it was Norway's government pension fund and that it would start a new round of foreign purchases of A shares after the country announced a tripling of its QFII quota to US$30 billion in December last year.

The Norwegian fund was given a US$200 million quota, according to Reuters.

'It is a small gesture to show that the A-share outlook remains positive because mainland stocks can still woo foreign institutions,' said Zhou Liang, research head of fund consultancy Lipper.

'The approval of a sovereign wealth fund also implies that China can draw fresh foreign funds even though existing QFII's lack buying interest.'

Existing funds had been reducing their A-share holdings in anticipation of a further downturn. QFII assets represent only a small portion of the mainland's three trillion yuan mutual funds.

'No one would catch a plummeting knife,' said Haitong Securities analyst Zhang Qi. 'Those investors who were once bullish on the A-share market are paying the price.'

Existing QFIIs were reducing their A-share holdings in anticipation of a further downturn, said Mr Zhou.

The Shanghai index has slumped 18.3 per cent so far this year after a 97 per cent jump in 2007.

Norges Bank, Norway's central bank which operates the pension fund, opened a Shanghai liaison office in November last year, a symbolic move to show its keen interest in mainland investments.

Svein Gjedrem, governor of Norges Bank, said the central bank would increase its investments in Asia, particularly on the mainland and in India.

The liaison office is responsible for information collection and market surveys to gain a better understanding of the local market.