Emerging markets fund house Ashmore says strong client demand was behind its move to obtain an RQFII licence to access China’s onshore securities market.
It was announced yesterday that the UK-based firm, which boasts $22.8 billion in Asia-Pacific-sourced assets (29% of its $78.5 billion globally), had been granted a renminbi-denominated qualified foreign institutional investor (RQFII) licence.
In the process it became the first investment manager outside of Hong Kong to be granted RQFII status by the China Securities Regulatory Commission (CSRC). The application was facilitated by HSBC, which became the first custodian bank to service a London-based RQFII investor.
Describing China’s investment market as one of the most dynamic in the world, Christoph Hofmann, Ashmore’s global head of distribution based in London, notes: “Many of our clients are looking for ways to make dedicated investments in China as part of their diversified global portfolios.
"We're planning to roll out dedicated products in due course. We see appetite from a broad range of investors from around the world."
Reportedly it is planning to launch a fixed income fund first, ahead of an A-share product.
Jan Dehn, Ashmore’s head of research, highlights the scale of the opportunity in China. He notes the nation’s $4 trillion interbank bond market is set for major development amid continuing liberalisations, while its $3.5 trillion A-shares market already has a market cap above that of the London Stock Exchange.
“Both these markets have traditionally been difficult for international investors to access, until now,” Dehn states.
Ashmore must now wait to receive an RQFII quota from the State Administration of Foreign Exchange (Safe), although no details were available on how much it is applying for. The Financial Times has speculated it will be in the hundreds of millions of renminbi.
To date, Rmb175.5 billion ($29 billion) in quota has been granted to 52 Hong Kong-based RQFII licence holders, including international firms such as PineBridge Investments (Hong Kong) and HSBC Global Asset Management (Hong Kong).
Ashmore was granted qualified foreign institutional investor (QFII) status in 2009 and opened an office in Beijing in 2010.
Hofmann has previously told AsianInvestor that Ashmore had been striving to extend its China footprint. It acquired a 49% interest in a domestic fund management partnership with China Central Securities in 2012. It also holds a passive 19.99% stake in Beijing International Trust.
But in yesterday’s statement, Ashmore noted that the RQFII scheme allows for improved repatriation of funds compared to the QFII scheme. It added that it also provides more flexible investment guidelines.
The RQFII programme allows international investors to access China onshore equity and fixed income markets directly via offshore RMB. It was piloted in December 2011 for 21 Hong Kong subsidiaries of mainland fund managers with an initial quota of Rmb20 billion. At first, fund managers were restricted to investing no more than 20% in equity and no less than 80% in fixed income.
The scheme was expanded by Rmb50 billion in April 2012, with participants permitted to use quotas to develop exchange-traded funds.
Hong Kong registered financial institutions were added to the list of firms that could apply for RQFII from March last year, while previous investment caps were removed to allow fund managers to develop products in line with prevailing market conditions.
The RQFII programme was extended to London and Singapore in July last year, with each jurisdiction granted Rmb80 billion and Rmb50 billion in quota, respectively.
At the start of this week, Deutsche Asset & Wealth Management and Harvest Global Investments confirmed they would launch Europe’s first direct ETF tracking China’s CSI300 A-shares Index on the London Stock Exchange January 16, as previously reported by AsianInvestor. It will also be listed on Deustche Borse.
It follows the listing of a db X-trackers ETF tracking the CSI300 Index in New York in November, as reported.