News & Insights

More QFII flexibility precursor to China quota schemes merger

Alwyn Li recently commented in Ignites Asia, an FT publication, on China’s State Administration of Foreign Exchange (SAFE)’s move to relax rules governing the qualified foreign institutional investor (QFII) quota system.

In a recent statement, SAFE said it would now allow QFII licence holders to transfer quotas among different types of investment products, the article states.

Alwyn sees the move as an attempt by mainland authorities to boost inflows from global investors into the China A-shares market. However, he doesn’t foresee much of this kind of quota transfer taking place.

Not all institutional investors would have different types of QFII accounts, and even when the quota for one product is exhausted, they typically ask for and are granted additional quota. It is only when companies are planning to set up a new product that they might look to transfer surplus quota from an existing product, he says.

“It goes back to a question of supply or demand, if there is any demand for a particular type of product or if they have clients readily asking for investment into A-shares through QFII, then they would design that product,” Alwyn added.

QFII quota regulation still requires a 50% allocation to equities, but a lot of managers are looking to boost investment in China’s fixed-income market, which the QFII scheme still does not permit a lot of room for, he says.

“After all, [investment] is still based on market sentiment, and right now it doesn’t look very positive,” said Alwyn. “But, I’m sure when the sentiment comes back all the quota will fill up quite quickly.”

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Alwyn Li

Partner | Financial Services

Email or call +852 2825 9627

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