Beijing fast-tracks opening up of A-share market

PUBLISHED : Tuesday, 14 February, 2012, 12:00am
UPDATED : Tuesday, 14 February, 2012, 12:00am


Beijing has fast-tracked approvals for foreign institutions' equity investments in the mainland's off-limits A-share market, in an apparent effort to shore up investor confidence.

The China Securities Regulatory Commission has licensed seven overseas institutions to become qualified foreign institutional investors, following a massive expansion of the programme in December last year.

The new QFII licences are being seen as an attempt by the regulator to prop up a weak market after it made the list of the world's worst-performing markets in 2010 to 2011.

Foreign investors are barred from buying yuan-denominated A shares. Only QFIIs can convert a certain amount of foreign currencies to trade mainland-listed stocks.

The seven follow 14 issued in December as Beijing accelerated the approval procedure to pump more overseas capital into locally listed shares. Between January and November last year, the regulator had approved 15 QFII licences.

'The rapid pace of QFII licence distribution reflects the regulator's efforts to boost investor confidence,' said Howhow Zhang, the head of research at fund consultancy Z-Ben Advisors. 'The trend of fast QFII approvals is expected to continue.'

The mainland's securities regulator has long been tasked with ensuring market stability as millions of individual investors bet on stocks with their years of savings.

After Guo Shuqing, the former China Construction Bank chairman, took the helm of the CSRC in October last year, investors hoped the reform-minded banker would be successful in breathing life into the ailing stock market.

The Shanghai Composite Index lost 21.7 per cent last year following a 14.3 per cent drop in 2010.

Beijing launched the QFII scheme in 2003, in the hope that western financial institutions would introduce a measure of professionalism in the market, where investors have long traded shares based on rumours rather than valuations.

To date, 142 QFIIs have been allowed to buy A shares, with a combined US$22 billion investment quota. Big-name global investment banks and funds including UBS and Goldman Sachs are among the QFIIs currently operating in the mainland market. The newly approved institutions include Hong Kong's Hospital Authority Provident Fund Scheme, South Korea's National Pension Service and BNP Paribas Asset Management.

According to data provider Lipper, QFIIs lost 26 per cent in A-share investments last year, doing worse than the 21.7 per cent drop in the key market index.