QFII quota tipped to make up 10 pc of Chinese market

Level will be reached within five years, while the number of qualified investors will more than double to surpass 500, ChinaQFII says

PUBLISHED : Monday, 11 November, 2013, 2:45pm
UPDATED : Tuesday, 12 November, 2013, 3:23am

Investment quota under the QFII scheme will jump to 10 per cent of the mainland market's capitalisation in five years from 1.5 per cent now, says ChinaQFII, a Hong Kong firm that helps foreigners invest on the mainland.

Over the same period, the number of qualified foreign institutional investors would more than double to over 500 from 240, said William Kwok, the chief executive of ChinaQFII.

He expects the number of investors under the renminbi qualified foreign institutional investor (RQFII) scheme also will more than double, to more than 100 from 47.

The central government launched the RQFII scheme in December 2011, when it granted licences to 21 subsidiaries of mainland securities firms and fund houses to sell yuan fund products in Hong Kong that would invest in mainland-listed stocks and bonds.

The QFII scheme, introduced in 2002, allows investors to bring foreign currency into the mainland to buy stocks, bonds and money-market instruments.

The number of QFIIs soared almost 20 times from 12 in 2003 to 237 in August, according to The China QFII Guidebook - China Deals Review, a book released by ChinaQFII yesterday. The approved investment quota for QFII leapt from US$1.7 billion in 2003 to US$46.4 billion in August, the book says.

The financial industry is the favourite mainland sector for foreign investors, with 30 per cent of those in the QFII scheme naming it as a top three pick, ChinaQFII's survey of about 200 investors shows.

"It is not surprising to see financials remain the favourite sector, given that QFIIs are [themselves] financial institutions," Kwok said.

"Some QFIIs have partnered Chinese financial companies to set up joint ventures in securities brokerage, asset management and investment banking, making them more inclined to choose financials as their top pick."

According to The China QFII Guidebook, the second-most popular sector is the consumer discretionary industry, which includes luxury cars and jewellery, with 16 per cent of QFII investors saying they would invest in this sector. Third is information technology, which is favoured by 13 per cent of QFII investors.

In the coming years, QFII investors will move more into health care, telecommunications and utilities, as well as small and medium-sized enterprises and companies listed on ChiNext, an exchange on the Shenzhen stock market catering to start-ups, ChinaQFII says.

The firm's research found favoured picks include Ping An Insurance, Industrial Bank, property developer China Vanke and Renhe Pharmacy.

A number of QFIIs have ventured into private equity investments. ChinaQFII's research found 74 per cent of existing QFIIs have set up their own private equity teams or become a limited partner in private equity funds.

Last year, the Government of Singapore Investment Corp, a sovereign wealth fund and QFII, invested US$30 million in sportswear firm Li Ning.

By quota, the biggest QFII investor is the Hong Kong Monetary Authority at US$1.5 billion, The China QFII Guidebook says.