Institutional investors want in on the act
Big institutional investors are hoping the 50 billion yuan (HK$61.6 billion) increase in the renminbi qualified foreign institutional investor scheme will open a door for them to invest more in mainland shares and bonds.
The China Securities Regulatory Commission said this month it would increase the amount that qualified foreign investors could invest under the RQFII scheme from 20 billion yuan to 70 billion yuan.
The rise may be used to support the launch of A shares and exchange-traded funds in Hong Kong, but full details have still to be announced.
Under the current arrangements, foreign institutions may apply for quotas to invest in the mainland's capital markets in foreign currencies. Insurance companies, mandatory provident funds and pension funds are still barred from investing yuan funds in mainland shares or the interbank bond market.
Sally Wong, the chief executive of the Hong Kong Investment Funds Association, urged policymakers to consider opening up the RQFII scheme. 'Insurers, pension funds and MPFs are very interested in the interbank bond market, which makes up the majority of the mainland bond market,' she said.
In December last year, the People's Bank of China allowed three types of foreign institutions to use yuan to invest in the interbank bond market: overseas central banks, settlement banks in Hong Kong and Macau, and participating cross-border yuan settlement banks. Insurance companies and providers of pension funds and MPFs were not included, despite customer interest in yuan products.
Principal Financial Group Asia president Rex Auyeung Pak-kuen said investors should be given more choice to invest in yuan products and that both insurance companies and their customers were keen to invest in A shares and mainland bonds.
The first RQFII quota, announced in December last year, was only offered to the 21 Hong Kong branches of mainland brokerages to enable them to offer yuan fund products to retail investors. It met with a lukewarm reception as retail investors were sceptical about the performance of the A-share markets.
Auyeung said policymakers had yet to define the role of the RQFII scheme in yuan internationalisation - whether it was to accelerate it or to give mainland asset management firms a competitive edge over their local and international counterparts as the mainland capital markets opened up.
Andrew Fung, an executive director of Hang Seng Bank in charge of investments, said the unenthusiastic subscription to the first batch of RQFII quotas had already proved retail investors in Hong Kong were very reactive to fluctuations in the offshore yuan exchange rate and the A-share market. A shares were, however, attractive to insurers and other institutional investors who took a longer-term view of equity investments..
The number of foreign institutions, from 23 countries, Beijing has allowed to invest in mainland capital assets since 2002