(May 16, 2012) — Some of the world’s largest investors are lining up to take advantage of China’s economic upward trajectory and new structure for foreign pension funds to invest in the country’s capital markets.
With quotas individually capped at $1 billion under the Qualified Foreign Institutional Investor (QFII) scheme, the China Securities Journal reported that the country may increase the maximum amount that a foreign financial institution can allocate. It did not say when or by how much the quota may be increased. The new mechanism for foreign pension funds to invest in China’s capital markets would be separate from the existing Qualified Foreign Institutional Investor program.
According to the newspaper, 37 QFIIs, including Norges Bank and Abu Dhabi Investment Authority, have applied to up their quotas by a combined $12.54 billion.
Last month, the China Securities Regulatory Commission announced that international fund managers would be permitted to invest a total of $80 billion in China’s onshore capital markets, up from the previous limit of $30 billion. The decision expanded the ability of QFIIs to invest in China’s stocks, bonds, and bank deposits. The regulator asserted that the decision to heighten the quota is meant to “promote opening of the domestic stock market, expand overseas investment channels for the yuan and to meet the needs of foreign investors on the domestic stock market”.
The pressure on China to seek foreign investment comes as the benchmark Shanghai Composite Index has fallen nearly 17% over the past year, compared with a roughly 13% drop in the broader Dow Jones Asia-Pacific index over the same period.
In addition, according to the Wall Street Journal, the country may introduce a specialized Qualified Domestic Institutional Investor plan, allowing wealthy investors to purchase Hong Kong stocks directly.
Meanwhile, amid plans to diversify its overseas investment portfolio in the face of the US dollar’s weakness, South Korea’s pension is seeking a higher level of investment in China. “Early next year, we’ll seek approval from the Chinese authorities to buy more stocks on China’s bourses after we use up our initial quota,” a Korean National Pension Service spokesman told the WSJ.