Foreign institutional investors will soon have unlimited access to the Chinese bond and stock markets after authorities announced, on Tuesday, the end of a quota system which has been in place for nearly two decades.
The Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RFQII) schemes, implemented in 2002 and 2011 respectively, made Chinese-traded stocks globally accessible.
The programmes’ effectiveness, however, is debatable. China’s cross-border Stock Connect with Hong Kong launched in 2014 and the trading link has supplanted QFII and RFQII as a means for foreign investors to access Chinese markets.
In addition to cancelling the institutional investment limits, mainland authorities announced the end of pre-approved quotas for individual foreign investors in a 10 September press release.
We will be updating this live reaction piece as comment comes in from financial market participants across Asia
5:30pm, Sept, 11 – Yang Yan, fund manager at Hong Kong-based Atlantis Investment Management
Most stocks which attract interest from foreign investors are already included in Stock
Connect, so the cancellation's impact on A-shares is quite limited. We focus more on the possibility of the investment cap for QFII on single stocks being raised or cancelled.
12:34pm, Sept, 11 – David Chao, Asia-Pacific global market strategist at Invesco
While this move is largely symbolic since only a third of the $300 billion cap is currently utilised – it will make it easier for offshore investors to access the Chinese markets in a more meaningful way.
I expect Beijing to continue offering incremental Chinese market-opening concessions as an indication that they are bargaining in good faith with Washington.
This policy announcement from the State Administration of Foreign Exchange is consistent with China’s commitment to market liberalisation – the measure reduces restrictions and offers more flexibility to foreign investors. It is a step in the right direction and a positive development for foreign institutional investors.
11:49am, Sept, 11 – Sally Wong, chief executive at Hong Kong Investment Funds Association
The Chinese authorities’ intention to is provide more investment choices.
Overall, I think more [international investor] money will go into China due to [its] index inclusion and the increasing importance of the China markets in investors’ overall portfolios. The question now is not whether they should go in but how to access it, and with what market allocations. The focus is very different now.
I talked to some fund managers about QFII versus Connect, and they say they will keep both as they have different advantages and benefits, and if you talk to the regulators this direction should continue as they look to enhance QFII and RQFII further.
10:55am, Sept, 11 – David Qu, economist at Bloomberg
China’s removal of its quota limit for foreign funds underscores a strong willingness to open up domestic markets, and may help boost investor sentiment at a time when the economy faces headwinds from the trade war.
In the short term... it should still improve the perception of China’s market, particularly for overseas investors.
In the longer term, the removal could support decisions by major equity index operators to include China stocks in their gauges, or increase their weights.
Prior to the removal, the MSCI had increased China A-share’s inclusion factor to 15% from 10%. The FTSE Russell included the A-share in June and the S&P Dow Jones announced they will include A-share with a weight of about 6.2% from September 23.
With this major change, we expect more policies to come, possibly sooner than markets’ expectations. These may include a further opening of the bond market to foreign investors and allowing greater business opportunities to foreign securities firms and wealth management businesses.
10:23am, Sept, 11 – Jing Ning, portfolio manager at Fidelity International
We do not believe this policy alone will create tremendous liquidity flow into [the] domestic financial market since current QFII utilisation rate is low while Stock Connect and other mechanisms offer equally easy market access.
Nonetheless, it indicates Chinese regulators’ determination to further sweeten the infrastructure for foreign investors to get access to Chinese stocks.
8:21am, Sept, 11 – Huang Xinqi, board member at Advanced Capital
The cancellation of the investment limit will not have much of an effect in the short term, as the quota is still enough.
But for [the] mid and long term, the policy may bring capital inflow if China eases the qualification process for foreign institutional investors. It can clear doubts [about the] Chinese capital markets for international investors and bring more recognition.
3:52am, Sept, 11 – Jan Dehn, head of research at Ashmore
The elimination of QFII and RQII quotas is more symbolic than a major practical change because most institutional investors are now moving to invest directly into China’s debt and equity capital markets, through the Stock and Bond Connect schemes and particularly the China interbank bond market.
But it is important for the signal it sends: that there has been no change whatsoever in the broad direction of capital account liberalisation in China.
Beijing is playing a much longer game. The US, by contrast, is taking a short-term focus, making populist moves. You don’t have to be a genius to know that ultimately the populist is going to lose and the long-term reformist will come out on top.
7:47pm, Sept, 10 – Justin Chan, co-head of markets for Asia Pacific at HSBC
Removing quota requirements for the QFII and RQFII programmes is a bold step forward in the reform and opening up of China’s capital markets. Reforms such as today’s, combined with ongoing index inclusion, ensure that China’s capital markets continue to move into the global investment mainstream.
Investors interested in the strategies of China’s asset owners can learn more at AsianInvestor's sixth Institutional Investment Forum China on September 18 in Beijing. Please click here for more details.