China scraps foreign asset allocation limits to lure investors

Chinese authorities have scrapped the asset allocation guidelines on Qualified Foreign Institutional Investors (QFII), which previously required a proportion of the assets as equity investments, Bloomberg quoted an unnamed source as saying on Monday.

The China Securities Regulatory Commission (CSRC) has told market participants that it no longer requires overseas investors to put at least 50 per cent of their assets into stocks, the report said.

Cindy Chen, the head of securities services with Citi in Hong Kong, confirmed the news when contacted by the Post.

“Yes, we are aware and glad to see the removal of this requirement for QFII,” Chen said.

China launched the QFII programme in 2002, which allows foreign investors to directly trade equities and bonds on the domestic market. By the end of August, a total of US$81.48 billion in quota had been granted to QFII participants.

“Foreign investors will have more freedom to sell equities, which was not allowed before,” said Adam Xu, a fund manager with Shanghai based Guotai Investment.

Analysts said that while the more relaxed portfolio requirement was a bonus to foreign investors, it could dampen A-share market sentiment.

“This news would mean some pressure on A shares because of asset reallocation by QFII funds between stocks and bonds,” said Hong Hao, chief strategist with Bocom International.

The regulator may not make a public announcement as the previous limits were not official policy, Bloomberg reported.

China has this year relaxed some capital controls in order to give foreign investors easier access to its domestic market. Regulators in February opened the nation’s interbank bond market to all long-term investors, and said QFIIs no longer need to apply for quotas, linking the cap on their onshore investments to their assets under management. Quotas for renminbi QFII, which enables offshore yuan to be used to purchase stocks and bonds in China’s onshore markets, were eased earlier this month.

“The new rule will help simplify the QFII scheme and bring QFII more in line with RQFII which does not have such requirement. This change would also make it easier to potentially merge the RQFII and QFII scheme at later stage,” Chen said.

A second stock link to Hong Kong, from the mainland city of Shenzhen, is expected to launch in November, further opening up the country to overseas money. The moves come after MSCI declined to include China’s equity markets in its emerging market indexes for a third time. In explaining its June 14 decision denying China’s inclusion, MSCI cited the need for additional improvements in accessibility to the mainland market.