Cathay Life looks to raise emerging market exposures

The Taiwan insurer talks about plans for its new QFII licence as it attempts to wean itself off US and European assets. Separately, Lyxor uses its QFII quota to launch an A-Share fund.
Cathay Life looks to raise emerging market exposures

The executive vice-president of Cathay Life Insurance has pointed to the potential of China’s fixed income market as a key diversifier as he talks about plans for its freshly minted QFII licence.

The Taiwanese insurer, a wholly owned subsidiary of Cathay Financial Holdings with $70.9 billion in AUM as at July last year, was awarded a qualified foreign institutional investor (QFII) permit by China’s securities regulator on February 27.

It was the parent firm’s second QFII award after Cathay Securities Investment Trust was granted a licence last June and received a Rmb100 million quota last December.

Abel Lin, executive vice-president, confirmed that Cathay Life intended to invest in China's onshore equity and bond markets, with a skew towards the former, at least initially.

He said the firm holds a positive view on China’s economic development and has its sights set on the mainland securities market becoming more mature in the medium term. But at present he views the market both as an opportunity to diversify risk and also to enhance yield.

“Our overseas investment has focused on the US and European markets and now we would like to increase our exposure in emerging markets,” Lin tells AsianInvestor. “China will grow into a significant fixed income market in the future. In the beginning we may invest more in equities, but in the long term we will focus more on fixed income securities.”

He notes that government bond yields in mainland China are 2 percentage points higher than in Taiwan, while the yields on quality corporate bonds in China are about 5-6%, compared with 1-2% in Taiwan.

However, Lin declines to reveal whether the onshore China investment will be carried out internally by Cathay Life, through Cathay Site or via external managers.

The China Securities and Regulatory Commission (CSRC) has quickened its QFII licence approval process in the past few months.

Besides Cathay, four Taiwanese insurers have obtained a QFII licence, namely Shin Kong Life Insurance (which has an approved $100 million quota), China Life Insurance, Taiwan Life Insurance and Mercuries Life Insurance.

In addition, six Taiwanese Sites have also obtained QFII licences: Fubon, Capital, Polaris, Cathay, Fuh Hwa and Prudential Financial. As of February 29, except for Prudential Financial, the five other Sites had all obtained an investment quota of $100 million each.

The waiting period between the awarding of a licence and the receipt of an investment quota has also shortened over the past year. Shin Kong Life Insurance, for instance, got its quota on February 26, just three months after its licence was approved on October 26. By contrast, Cathay Site waited over six months for its quota from June 9 to December 20 last year.

Safe’s quota approval list, which was updated on February 29, shows that the Monetary Authority of Singapore obtained a Rmb100 million QFII quota on January 20 (its licence was granted on October 8 last year), while Japan’s Skinko Asset Management was awarded the same amount on February 26 after its licence was handed out on November 25.

Separately, Lyxor Asset Management, a wholly owned subsidiary of Société Générale, announced the launch of the Lyxor Selection China A Fund yesterday using its $100 million QFII quota, which was granted on November 28 last year. It received its QFII licence on February 16 last year.

The fund is an open-ended unit trust with a minimum investment of $3,000. The fund is authorised for sale to retail investors in Hong Kong and is registered in Singapore for professional investors. AsianInvestor understands that SocGen also plans to submit it to authorities in Macau for sale to the retail market there.

The subscription period runs from March 5 until April 5, with the launch scheduled for April 19.

The fund will invest primarily in China-related equities with exposure to A-shares varying from 70-100% of its assets. The sub-custodian is China Construction Bank.

Lyxor has appointed Fortune SG Fund Management Company as its mainland investment adviser, with its 60-strong investment team. As at December last year, Fortune SG was managing 21 open-type securities investment fund products with Rmb36.7 billion of AUM.

The initial sales charge is up to 5%, with a redemption charge of up to 5% to be waived after the lock-up period. The management fee is 1.75% per annum.

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