If correct, the figure would account for about 4 per cent of the 120 billion yuan under management as of the end of last year and just a fraction of Hong Kong's $6.09 trillion market capitalisation.

Until now, the fund has been limited to investing in domestic markets. However, the State Council last month granted the fund approval to invest in overseas capital markets, with Hong Kong the preferred market.

The move would also widen the fund's available investment channels, allowing it to spread risks and increase asset returns.

There was no noticeable reaction to the news in the market yesterday, according to dealers, although expectations of an approval have supported H shares since the issue was first mentioned by Secretary for Financial Services and the Treasury Frederick Ma Si-hang last month.

The lack of investor enthusiasm also likely reflected the mooted small size of the initial investment and thus would have limited direct impact on share prices.

However, its long-term implications were clearly positive, analysts said.

'We regard it as the first step for the launch of QDII, which would provide an official channel for massive amounts of mainland funds to flow into, and give long-term support to, the Hong Kong market,' analysts at ICEA Securities Asia said in a research note.

QDII, or the qualified domestic institutional investor scheme, will allow mainland institutional investors to channel domestic funds to overseas capital markets.

Given its long-term liabilities, the fund could be expected to put many of its investments into debt instruments, such as the planned Hong Kong government bonds that would be backed by tunnels and bridges, said Kingston Lee, the head of Hong Kong and China research at ING Financial Markets.

The remainder is expected to go into H shares and blue chips.