Following their approval this week as qualified foreign institutional investors, Cathay Securities Investment Trust (Site) and Fuh Hwa Site plan to invest the QFII quotas on behalf of their China-focused and international equity funds.
The two Taiwanese firms are now awaiting the outcome of their application to China's State Administration of Foreign Exchange (Safe) for QFII quotas – Cathay for $100 million and Fuh Hwa for $150 million.
French asset manager Comgest also received its QFII licence from the China Securities Regulatory Commission (CSRC) this week, but the firm could not provide details of its plans by press time.
Under Taiwan rules, actively managed domestic mutual funds can invest up to 30% of their total assets under management in China’s A-share market. This restriction does not apply to Taiwan-based exchange-traded funds, which can be fully invested in Chinese assets.
Hence Cathay and Fuh Hwa plan to allocate the QFII quota into several active funds, whereas Fubon and Polaris use the quota for ETFs tracking A-share indices.
Cathay will invest most of the QFII quota in its Mandarin Fund, China Domestic Consumption Growth Fund and a third China-themed fund due for launch later this year. The third product will focus on strategic emerging industries in line with China’s 12th five-year plan, says Sean Chen, head of China equity investment at Cathay Site.
“We believe China’s equity market is going to be a long-term story, and we must accumulate investment experience in the A-share market by actively managing the funds,” he adds.
Cathay will invest the rest of the quota into its four overseas mutual funds: the Emerging Markets Fund, Global Ecology Fund, Global Infrastructure Fund and Global Resources Fund.
Fuh Hwa will buy A-shares for its own four overseas mutual funds, namely Greater China Fund, Greater China Mid and Small Cap Fund, Asia Pacific Balanced Fund and Asia Pacific Equity Fund.
Since it usually takes several months for Safe to approve QFII quotas, Chen says Cathay may not be able to start investing in mainland China until early next year.
Seven QFIIs have been approved this year, including Assicurazioni Generali, Lyxor Asset Management and Banco Bilbao Vizcaya Argentaria. The latest batch brings the total number of QFIIs to 113.