BlackRock to apply for new QFII quota for its China A-share ETF

Asset manager says it wants a larger allocation for its A-share exchange-traded fund

PUBLISHED : Friday, 19 July, 2013, 12:00am
UPDATED : Friday, 19 July, 2013, 5:08am

BlackRock, the world's largest asset manager, says it plans to apply for a new investment quota under the qualified foreign institutional investor scheme to enable investment in China's domestic equities market.

"Hopefully we can see more [quota], to add to both our passive and active funds focused on China in the coming months … We've been in talks with the regulators," managing director Marc Desmidt told reporters yesterday.

The move highlights the appeal of the onshore market even as Shanghai stocks have declined 10.8 per cent this year.

The Chinese regulator almost doubled QFII quotas earlier this month, taking it to US$150 billion. QFII, introduced in 2002, allows investors to bring foreign currency into China to buy domestic stocks, bonds and money market instruments.

BlackRock wants a larger quota for its A-share exchange-traded fund, the iShares FTSE A50 China Index ETF, the most popular A-share ETF listed on the local exchange in terms of daily transaction volume.

He did not say how much extra quota the firm planned to apply for. In June 2012, the asset manager received a US$100 million QFII quota and in February this year, it obtained another US$100 million.

BlackRock joins a growing number of foreign investors expressing interest in boosting their QFII quotas, despite the fact that China's equity market has been the world's worst performer this year.

Some 22 foreign institutions were granted new QFII quotas by the nation's securities watchdog this year. As of June, some 229 foreign institutional investors held QFII quotas worth about US$43.5 billion.

Foreign investors are not optimistic about the short-term outlook for the onshore market.

"Headwinds relating to China are likely, given that the onshore deleveraging agenda may lead to potential credit events," said Andrew Swan, head of Asian fundamental equities at BlackRock.

HSBC Global Asset Management's head of macro and investment strategy, Philip Poole, said: "The risk (for the economy) is relying too much on investments funded by credit.

"That won't work for the future and it makes sense to tackle the issues now, even if there could be short-term turmoil."