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HK yuan investment scheme to gain pace
By Z-Ben Advisors |
00:00 UTC+8 March 11, 2013
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IT may have seemed like a long-time coming, yet crucial deregulations of the Renminbi Qualified Foreign Institutional Investor (RQFII) program that the industry has been waiting for are finally here. The China Securities Regulatory Commission and other authorities have certainly made it worth the wait.
On March 6, regulators announced two major changes to the program. Firstly, RQFII products - which were until now heavily restricted to either being constructed with a minimum 80 percent investment in fixed income, or an exchange-traded fund (ETF) - can now essentially be assembled with any allocations the qualified manager sees fit.
The second change, the real clincher, relates to the range of managers permitted to participate in RQFII. For some time, we have been predicting that the CSRC and the Securities and Futures Commission of Hong Kong were set to allow the Hong Kong subsidiaries of mainland banks and insurance companies to apply for RQFII licenses.
This was also confirmed last week; however the regulators didn't stop there. In a move that unseated even the perma-optimists that we are, the powers that be are now opening the program to essentially any foreign financial firm domiciled in Hong Kong.
With the previous stipulation that only Hong Kong subsidiaries of mainland fund management companies and securities firms could apply for RQFII licenses, the list of qualified managers is currently limited to 25 companies. As a result of this, and strict controls on asset allocation, RQFII funds to date have been mostly fixed-income in nature, and have produced less-than-inspiring returns.
With the minimum fixed-income cap lifted, and with a wider range of managers now permitted to apply for RQFII, a much broader range of offerings will hit the market, and the lineup is sure to expand greatly in the next 12 months.
Z-Ben Advisors is a Shanghai-based consulting company, covering the Chinese asset management industry.
Time line:
Dec 2011: A first batch 20 billion yuan (US$3.17 billion) quota under RQFII program was allocated to 21 financial institutions in Hong Kong, allowing foreign institutional investors to enter China mainland's capital market with yuan funds raised offshore.
Apr 2012: RQFII quota was more than tripled to 70 billion yuan, mainly designated to trading A-share ETFs in Hong Kong.
Nov 2012: China raised the RQFII quota to 270 billion yuan, more than 10 fold the original quota, on strong market demand.
Mar 2013: More institutions and investment options are allowed by regulators under the RQFII program.
On March 6, regulators announced two major changes to the program. Firstly, RQFII products - which were until now heavily restricted to either being constructed with a minimum 80 percent investment in fixed income, or an exchange-traded fund (ETF) - can now essentially be assembled with any allocations the qualified manager sees fit.
The second change, the real clincher, relates to the range of managers permitted to participate in RQFII. For some time, we have been predicting that the CSRC and the Securities and Futures Commission of Hong Kong were set to allow the Hong Kong subsidiaries of mainland banks and insurance companies to apply for RQFII licenses.
This was also confirmed last week; however the regulators didn't stop there. In a move that unseated even the perma-optimists that we are, the powers that be are now opening the program to essentially any foreign financial firm domiciled in Hong Kong.
With the previous stipulation that only Hong Kong subsidiaries of mainland fund management companies and securities firms could apply for RQFII licenses, the list of qualified managers is currently limited to 25 companies. As a result of this, and strict controls on asset allocation, RQFII funds to date have been mostly fixed-income in nature, and have produced less-than-inspiring returns.
With the minimum fixed-income cap lifted, and with a wider range of managers now permitted to apply for RQFII, a much broader range of offerings will hit the market, and the lineup is sure to expand greatly in the next 12 months.
Z-Ben Advisors is a Shanghai-based consulting company, covering the Chinese asset management industry.
Time line:
Dec 2011: A first batch 20 billion yuan (US$3.17 billion) quota under RQFII program was allocated to 21 financial institutions in Hong Kong, allowing foreign institutional investors to enter China mainland's capital market with yuan funds raised offshore.
Apr 2012: RQFII quota was more than tripled to 70 billion yuan, mainly designated to trading A-share ETFs in Hong Kong.
Nov 2012: China raised the RQFII quota to 270 billion yuan, more than 10 fold the original quota, on strong market demand.
Mar 2013: More institutions and investment options are allowed by regulators under the RQFII program.
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