SAFE plans QFII quota boost to US$1b

PUBLISHED : Saturday, 05 September, 2009, 12:00am
UPDATED : Saturday, 05 September, 2009, 12:00am

Beijing plans to raise the maximum quota for individual qualified foreign institutional investors (QFIIs), a clear signal that mainland regulators are attempting to stabilise the volatile stock market.

The State Administration of Foreign Exchange published a draft rule yesterday, announcing that a licensed QFII investor would be given as much as US$1 billion in foreign-exchange quotas, up from US$800 million, to invest in mainland stocks, bonds and funds.

The administration is soliciting opinions on the new policy until September 18, it said.

The regulator also said it would reduce the lock-up periods of some types of QFII funds including pension and insurance funds from one year to three months.

'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,' said Jing Ulrich, JP Morgan's chairman for China equities.

The foreign-currency regulator's announcement came one day after leading financial newspapers splashed upbeat comments by China Securities Regulatory Commission vice-chairman Liu Xinhua who, without elaborating, said the securities watchdog was determined to promote a stable and healthy stock market.

The Shanghai Composite Index has dived 17.6 per cent since this year's high of 3,471.44 points on August 4 amid panic selling, closing at 2,861.609 points yesterday.

Analysts said the new QFII rule was targeted at boosting investors' confidence.

Beijing launched the QFII programme in December 2002, giving big-name foreign institutions access to the A-share market.

QFIIs have helped the regulators set a tone on what was once a speculators' market as they traded stocks on valuation rather than on rumours.

China tripled the QFII quota from US$10 billion to US$30 billion in 2007 to expand foreign investment into local stocks amid the funds' increasing influence on the domestic market.

There are 87 foreign institutions licensed to trade A shares with nearly US$15 billion of foreign-exchange quota being distributed to them.

'The rule change is in line with growing demand from QFIIs who want to increase A-share holdings,' said Zhou Liang, the chief of the asset management department of Zheshang Securities. 'QFIIs' growing interest in A shares is seen as a boost to the weak market.'

UBS, which has US$800 million of quota, in past years has shown an interest in raising the investment as it lobbied regulators for more quota.

Mainland regulators favoured QFIIs that set up actively managed A-share funds aimed at retail investors, fund consultancy Z-Ben Advisors said in an early report.

Beijing is expected to grant a US$2.8 billion annual quota to QFIIs in the next five years to stimulate the market, Z-Ben said.

It forecast the number of QFIIs would rise to 154 by 2014.