Beijing set to pave way for new yuan investment funds

Regulators expected to approve more yuan investment products, opening floodgates for fresh capital to boost equity and bond markets

PUBLISHED : Saturday, 20 April, 2013, 12:00am
UPDATED : Saturday, 20 April, 2013, 5:44am

Beijing is set to open the floodgates for fresh capital from Hong Kong to the mainland's equity and bond markets in a bid to shore up liquidity.

The China Securities Regulatory Commission and the State Administration of Foreign Exchange have begun vetting applications for new renminbi qualified foreign institutional investor (RQFII) products following a three-month hiatus.

They are likely to grant fresh quotas as early as the end of this month, according to regulatory officials and fund managers.

Beijing launched the RQFII scheme in 2011, allowing Hong Kong subsidiaries of mainland fund houses and brokerages to raise offshore yuan to invest in the mainland stock and bond markets.

The RQFII quota was raised to 270 billion yuan (HK$339 billion) late last year from 70 billion yuan, which was used up in January.

A CSRC official said the regulators had accepted new applications and were reviewing them.

The move to reopen the RQFII market followed a major liberalisation last month, when non-mainland institutions registered in Hong Kong and Hong Kong-based units of mainland banks and insurers were also allowed to participate in the scheme.

Hong Kong subsidiaries of mainland institutions will continue to be the primary target in the new round of RQFII quota issuance

"Hong Kong subsidiaries of mainland institutions will continue to be the primary target in the new round of RQFII quota issuance," said Z-Ben Advisors' chief researcher Howhow Zhang. "Some quotas will also be assigned to foreign companies."

A clutch of mainland institutions, encouraged by the government to expand abroad, have been preparing to issue new RQFII funds in Hong Kong to diversify their revenue sources.

Last week, Industrial Securities said it would launch its RQFII product, taking an initial step towards its go-global strategy.

The medium-sized Fujian-based brokerage said it was also considering overseas acquisitions and a listing on the Hong Kong stock market.

RQFII funds are subject to a 20 per cent cap on equity investments while the remaining 80 per cent of their assets are restricted to fixed-income products. Mainland authorities might increase the equity investment ceiling in the near future, sources said.

The move to introduce more RQFII funds to the mainland follows a lacklustre stock market performance this year.

The Shanghai Composite Index is up 0.36 per cent so far this year, despite the CSRC's efforts to restore investor confidence by suspending initial public offerings.

It is believed that newly appointed CSRC chairman Xiao Gang is under pressure to bolster confidence since he took office late last month.

The former Bank of China chairman, who took over from Guo Shuqing, remains tight-lipped on his policy directions. Yet, the timing of restarting issuing RQFII quota is seen as the latest effort by the regulator to boost the market.

The CSRC stopped approving initial share sales in October last year to stem fresh equity influx while underpinning the weak share market.

More than 700 applicants are still awaiting clearance to list on the Shanghai and Shenzhen stock exchanges.

Although there has been speculation that Xiao would lift the ban on initial public offerings soon, the CSRC has not announced a timetable for new share sales.