HONG KONG May 3 Concerns about China’s slowingeconomy and fears of further weakness in its yuan currency willlikely keep global investors at bay despite Beijing’s efforts topush foreign funds into its market by making them invest aminimum amount.
The State Administration of Foreign Exchange (SAFE) willlikely consider cutting investor quotas under the QualifiedForeign Institutional Investor (QFII) scheme if an investor doesnot use up 60-70 percent of the allotment within a year after itis approved, two sources have told Reuters.
However, fund managers say they will not rush to increaseinvestments just to meet this requirement as investor demand forChinese assets remains weak after a market rout last year andamid continued uncertainty over the economy.
SAFE is also reviewing and verifying the quotas of allexisting QFIIs. The process is expected to be completed by June.
“We will not increase our investment under QFII unlessthere’s demand from clients, even if the regulator has set aminimum level of allotment ratio,” said a fund manager at aChinese asset management firm in Hong Kong, adding that he hadyet to see an improvement in appetite for yuan assets.
“The QFII quota is not as precious as it used to be sincethere are many new channels now to enter China, such as theinterbank bond market scheme and stock connect scheme,” he said.
The yuan fell 4.5 percent against the dollar in 2015 and isexpected to weaken further this year.
Lukewarm demand for QFII also is partly due to its lack offlexibility for years in terms of repatriating funds.
“It’s difficult to keep investment above that 60-70 percentlevel as market conditions are not good, especially after aseries of bond default cases in China,” said an executive incharge of QFII business at a Chinese brokerage.
China launched the QFII scheme in 2002 as the firstprogramme for global investors to enter its domestic market. Asof April, the outstanding amount of QFII was at $81 billion,only 10 percent higher than a year ago. Figures on how much ofthe total quota is utilised are not publicly released.
It has become less important in recent years as Beijing’slaunch of the Renminbi QFII (RQFII), the Shanghai-Hong Kongstock market connection scheme and China interbank bond marketprogrammes have given global investors other ways to put moneyinto China’s markets.
“China is trying to get as much capital inflows as possibleinto the country so that it can offset the outflows,” said IrisPang, a senior Greater China economist at Natixis.
China is still struggling to stem fund outflows due asluggish economy, although recent data has showed some easing ofoutflow pressure, analysts say.
Foreign investors are also waiting to see whether the U.S.will raise interest rates again and if the MSCI will include Ashares into its benchmark index, Pang said.
Index provider MSCI will decide in June whether to include 5percent of the mainland A-shares’ free float-adjusted marketcapitalisation but still has concerns about barriers toinvestment in China. (Reporting by Michelle Chen; Editing by Kim Coghill)
