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Daniel Ren

The increase of the qualified foreign institutional investor (QFII) quota came as a shot in the arm for the mainland's flagging stock market, but analysts are uncertain about whether the rally will sustain.
Last week the China Securities Regulatory Commission (CSRC) said the QFII quota would be raised to US$80 billion from US$30 billion. That fired up mainland investors' buying appetite and saw share prices rally by 1.9 per cent by the week's end. 
But Xie Baisan, a finance professor at Shanghai-based Fudan University, said foreign institutions would assess the valuations of listed firms before using the increased quota to further invest in A shares.
On Friday, the A shares of firms with dual listings in Hong Kong and the mainland traded at a 5.8 per cent premium to their H-share counterparts.
Xie forecast that foreign institutional investors would prefer to buy H shares rather than the volatile A shares.
In its announcement last week, the CSRC also said it would lift the total cap for the RQFII programme to 70 billion yuan, from 20 billion yuan. The scheme allows Hong Kong units of mainland firms to raise offshore yuan funds for A-share investment.
Analysts and investors welcomed the twin moves as a return to basics by the market regulator, effectively tripling the amount that foreign institutions can invest in mainland-listed A shares.
The moves indicated that Beijing was 'supportive of capital inflows into the domestic market', said Jing Ulrich, JPMorgan's chairwoman of global markets for China.
However, other analysts said the moves also raised the bar for any further prospective market-moving incentives and could lead to a boom-to-bust cycle in present volatile trading conditions.
'It will be a long time before the increased quotas of overseas capital land in the A-share market,' said Shenyin Wanguo Securities analyst Qian Qimin. 'The policy won't see immediate gains.'
Analysts said the brief two-day rally with which the market closed last week could run out of steam this week as some investors choose to cash out and lock in their gains owing to the market's bearish long-term outlook.
Before 2009, mainland regulators were comfortable about intervening in the market whenever key indicators would get bogged down in a downward spiral, as part of efforts to maintain social stability. 
But in 2010 and last year, under the chairmanship of Shang Fulin, the CSRC appeared reluctant to roll out incentives to rally the market, as it stressed the significance of deepening market-oriented reforms.
However, the key Shanghai stock index turned out to be the world's worst performer in the past two years, prompting newly appointed CSRC chairman Guo Shuqing to map out a rescue plan.
Increasing capital inflows by raising quotas for QFIIs or fast-tracking approvals for mutual funds are steps in this direction. 
However, nearly all market gains achieved as a result of these moves have turned out to be short-lived because fundamentals have not been able to sustain the rallies. 
For instance, on September 19, 2008, the key index jumped 9.5 per cent because of Beijing's decision to cut stamp duty. But this was followed by a 12.3 per cent loss between September 20, 2008, and December that year.
The mainland economy is set to slow down this year as Beijing has set a lower growth target. Beijing has also said it would continue to maintain the credit curbs to cool the property sector. 
In addition, major mainland banks remain plagued by concerns about a bad-debt crisis, which is also likely to weigh down stocks in the near term.




Doubts over market incentives