Big investors stay wary on China equities despite RQFII rules change

The relaxation of investment rules on the mainland under the RQFII scheme has not stopped large-scale investors from remaining cautious

PUBLISHED : Tuesday, 19 March, 2013, 12:00am
UPDATED : Thursday, 28 March, 2013, 11:20am

Big investors remain cautious about investing in mainland equities despite this month's move by the market regulator to relax investment rules under the renminbi qualified foreign institutional investor scheme, or RQFII.

DBS, the largest bank in Singapore by market capitalisation, said it would aim to provide its customers with investment products released under the revised scheme, rather than taking up a quota for its own investment portfolio.

Leung Tak-lap, managing director and head of treasury and markets at DBS Bank in Hong Kong, said the bank was satisfied with the returns it generated from yuan loans and trade finance, and it would prefer to provide yuan investment services under the RQFII scheme to clients in return for earning fee incomes.

Yuan deposits held by DBS in Hong Kong reached 14 billion yuan (HK$17 billion) by the end of last year, up from 13 billion yuan a year earlier.

Income from yuan products provided to customers jumped 60 per cent year on year in January and February, because of customers' expectations that the yuan would resume appreciating this year, Leung said.

DBS employs 90 people in its dealing room in Hong Kong, mostly serving mainland corporates, and about 70 per cent of dealing room revenues are generated by yuan-related transactions. Three to four years ago they contributed just 20 per cent of revenue.

Yuan clearing banks were appointed in Taiwan in December and Singapore in February, and given DBS's presence in both markets as well as Hong Kong, it was well equipped to provide "region-wide solutions" for customers seeking yuan products and services, Leung said.

Hong Kong was likely to be the first market to issue offshore yuan bonds, he said, because of its yuan liquidity and infrastructure.

Transactions of yuan deliverable forward contracts in the Hong Kong interbank market doubled to about US$9 billion a day from a year earlier, while non-deliverable forward contracts in yuan remained stable at US$3.4 billion, Leung said.

Buyers of deliverable forward contracts are usually corporate customers who need to access yuan funds, while buyers of non-deliverable forwards were mostly hedge funds.

"The fixing of non-deliverable forward contracts is determined by the People's Bank of China, so the rate is an administrative one. Buyers are happier with deliverable forwards, which have a fixing rate determined by demand and supply in the market," Leung said.