CBRC widens investment scope for Chinese wealthy
Measure expected to trigger a flurry of structured products giving mainland investors access to Hong Kong equities.
The China Banking Regulatory Commission has widened the scope of investment allowed under mainland commercial banksÆ overseas wealth management business for their high-net-worth clients. Until now, qualified domestic institutional investors (QDII) were limited to global fixed-income exposures via structured products, often designed by international investment banks and distributed through domestic commercial banks.
Beijing will now allow domestic banksÆ QD products to invest in a wider range of asset classes, including equities and equity funds that are authorized by a recognized supervisory authority. The CBRC in April signed a memorandum of understanding with Hong KongÆs regulators to this effect. Overseas firms appointed as investment managers must also be regulated by a supervisory authority with an MOU with the CBRC.
Eddy Fong, chairman of Hong KongÆs Securities and Futures Commission, says the opening will benefit Hong KongÆs asset management industry, which for the time being will be the main platform for mainland investors to invest overseas.
Under the new policy, equity investments will be limited to 50% of NAV of each product (meaning the rest will be in fixed income). The minimum investment by each investor in equity QD funds will be RMB300,000 ($39,000).
ôThis minimum investment requirement appears restrictive, but is much less restrictive than we had expected,ö says Jun Ma, managing director and chief economist at Deutsche Bank in Hong Kong. ôWe expect quite a few banks to launch QDII products within one or two months.ö
He predicts Hong Kong-listed Chinese shares, particularly those absent from the A-share market or dually listed ones trading at a steep discount to A-share counterparts, will benefit.
ChinaÆs QDII program has failed to ignite. So far banks have used up a fraction of their existing quota, and only one fund has been launched (by Huaan Fund Management, with Lehman Brothers as sub-advisor), with a very modest response. The combination of a raging domestic stock market and widespread belief that the renminbi will continue to appreciate against the US dollar has dampened sentiment for overseas investments.
But the authorities are now widening the scope for QD exposure, and boosting the amounts that people can allocate overseas, both of which make it easier for banks and fund managers to design efficient products. And if minimum requirements are expanded and the A-share market cools off, QDII flows into Hong Kong are likely to accelerate, says Ma. It should also over time reduce the valuation gap between the A- and H-share markets.
Beijing will now allow domestic banksÆ QD products to invest in a wider range of asset classes, including equities and equity funds that are authorized by a recognized supervisory authority. The CBRC in April signed a memorandum of understanding with Hong KongÆs regulators to this effect. Overseas firms appointed as investment managers must also be regulated by a supervisory authority with an MOU with the CBRC.
Eddy Fong, chairman of Hong KongÆs Securities and Futures Commission, says the opening will benefit Hong KongÆs asset management industry, which for the time being will be the main platform for mainland investors to invest overseas.
Under the new policy, equity investments will be limited to 50% of NAV of each product (meaning the rest will be in fixed income). The minimum investment by each investor in equity QD funds will be RMB300,000 ($39,000).
ôThis minimum investment requirement appears restrictive, but is much less restrictive than we had expected,ö says Jun Ma, managing director and chief economist at Deutsche Bank in Hong Kong. ôWe expect quite a few banks to launch QDII products within one or two months.ö
He predicts Hong Kong-listed Chinese shares, particularly those absent from the A-share market or dually listed ones trading at a steep discount to A-share counterparts, will benefit.
ChinaÆs QDII program has failed to ignite. So far banks have used up a fraction of their existing quota, and only one fund has been launched (by Huaan Fund Management, with Lehman Brothers as sub-advisor), with a very modest response. The combination of a raging domestic stock market and widespread belief that the renminbi will continue to appreciate against the US dollar has dampened sentiment for overseas investments.
But the authorities are now widening the scope for QD exposure, and boosting the amounts that people can allocate overseas, both of which make it easier for banks and fund managers to design efficient products. And if minimum requirements are expanded and the A-share market cools off, QDII flows into Hong Kong are likely to accelerate, says Ma. It should also over time reduce the valuation gap between the A- and H-share markets.
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