Funds industry wants more action on RQFII

Even after a recent relaxation to include companies from HK, only a few institutions can be involved in the yuan investor scheme, brokers say

PUBLISHED : Saturday, 31 August, 2013, 12:00am
UPDATED : Saturday, 31 August, 2013, 3:21am

Brokers and fund managers say Beijing's recent expansion of a scheme to allow more Hong Kong-based financial firms to invest in mainland stock and bond markets has not gone far enough.

King Au King-lun, chief executive of BOCHK Asset Management, said his firm was among the first batch of Hong Kong-based financial firms last month to secure a renminbi qualified foreign institutional investor (RQFII) quota, which allows it to tap offshore yuan in Hong Kong and then invest in the mainland.

"Mainland China's recent expansion of the RQFII schemes not only means a big boost to fund companies in Hong Kong but also to the progress of the internationalisation of yuan," Au said.

"At present, most Hong Kong and international fund houses use US dollar or Hong Kong dollars to invest. With the expansion of the RQFII scheme, we can produce more yuan fund products for international investors and hence encourage investors to use the yuan to invest."

The yuan is not convertible but the mainland has since 2009 allowed companies to use the currency to settle trade and to invest. The country eventually wants it to be used as widely as the US dollar. As of March this year, 19 per cent of Sino-foreign trade was settled in yuan, compared with 0.4 per cent in 2010.

"Overseas companies that use the yuan to settle trade have offshore yuan to invest. Now they mainly invest in dim sum bonds - yuan denominated bonds in Hong Kong - or have yuan deposits. The RQFII provides more choice for them," Au said.

Quotas for RQFII, which started in December 2011, were initially given to Hong Kong subsidiaries of mainland asset-management companies only. That failed to attract attention because those companies were little-known in Hong Kong. Beijing relaxed the scheme in July to give RQFII licences to Hong Kong-based firms including BOCHK, Hang Seng Bank, HSBC and Bank of East Asia. Beijing last month said it would expand the RQFII to companies in London, Singapore and Taiwan, which compete as offshore yuan centres.

Sun Hung Kai Financial executive director Joseph Tong Tang said the expansion was not enough. "Even after the recent expansion, there are only a few institutions that can be involved in the RQFII schemes," Tong said.

Tong said Hong Kong investors had limited knowledge about mainland-traded A-shares companies and were not interested in RQFII products.

Mark Mobius, executive chairman of Templeton Emerging Markets Group, said his company had a US-dollar QFII quota but not an RQFII quota.

"It would be hard for international investors to use the yuan as an investment currency as most of them have US dollars or euros on hand," Mobius said.

China had capital controls in place, which made it difficult for mutual funds to exit markets to meet overseas clients' redemption requirements, he added.

China would need to let its currency be fully convertible if it wanted international fund houses and investors to use the yuan to invest, Mobius said.

Christopher Cheung Wah-fung, legislator for brokers, said Hong Kong residents could exchange up to 20,000 yuan (HK$25,300) a day from other currencies. "This is too restrictive and Beijing should remove the cap," Cheung said.

He said the poor performance of the Shanghai stock market over the last three years had discouraged investors from buying RQFII products.

"Investors are worried about the mainland's economic slowdown."