Asia continues to lag other regions for integrating ESG principles with investing; better data and stronger regulatory requirements will help institutional investors, market observers say.
Qualified domestic institutional investor (QDII) funds performed even worse, posting an average loss of 7.2% last month. That brings the QDII fundsÆ average loss for the first three quarters of this year to 30.62%. The QDII programme allows institutional investors to move funds overseas as part of the liberalisation of China's capital account.
The QDII scheme experienced a considerable setback in September. Hua An International Balanced Fund, the country's first QDII product, held a large amount of structured notes guaranteed by Lehman Brothers Holdings. Since Hua An could not make a proper evaluation of the fund's assets after Lehman Brothers filed for bankruptcy protection, it temporarily halted redemptions and has decided to assume responsibility for payment of the principal on the QDII funds and to continue every effort to avoid liquidation before the end of the fund's five-year term in 2011.
Qualified foreign institutional investor (QFII) funds posted an average loss of 6.12%. The average loss for the January to September period reached 51.74%. The total net assets of the 21 QFII funds tracked by Lipper last month slid to $7.31 billion from $7.961 billion.
China launched the QFII programme in mid-2003 to allow approved foreign institutions to trade A-shares and bonds on the Shanghai and Shenzhen exchanges. The programme was part of the governmentÆs efforts to open ChinaÆs capital market and ease controls on the capital account, under which the yuan isnÆt fully convertible.
To boost market sentiment and restore investor confidence amid the global financial crisis, ChinaÆs government unveiled a rescue package last month that included scrapping its stamp tax on share transactions. The Central Huijin Investment Company, an investment arm of sovereign wealth fund China Investment Corporation, announced an increase to its shareholdings in Industrial and Commercial Bank of China (ICBC), the Bank of China (BOC), and the China Construction Bank (CCB).
Li Rongrong, chairman of the state-owned Assets Supervision and Administration Commission of the State Council (SACAS), stated that the SACAS welcomed those enterprises coming directly under the administration of the state council to buy more shares in their listed branches. That caused Chinese equities to post a sharp rally, but overall shares continue to be affected by external developments.
On September, 16 the People's Bank of China cut lending rates for the first time in six years, the strongest indication the Chinese government has become concerned about the need to spur growth.
Earlier this month, on October 8, the People's Bank of China cut both its lending and deposit rates. The one-year benchmark lending rate dropped to 6.93% and the one-year deposit rate to 3.87%. This was the second time in a month that China's central bank cut interest rates, mainly from concern over an economic slowdown.
ôThe main downside risk of the credit crisis to China would be exports dipping because of slower US consumption,ö says Xav Feng, head of research for China and Taiwan. ôHowever, with a solid economic foundation and a stable institutional environment, the Chinese economy has maintained good momentum.ö
The China Consumer Prices Index (CPI) continued to moderate to 4.9% in September from 6.3%. This was the fourth consecutive-month drop and inflation was expected to decline further for staple commodities on a higher base figure for the same-year-earlier period. China's monetary policy is expected to become more flexible in the fourth quarter as the country's macro-control policy leans towards maintaining economic growth.
ôAlthough global governments have exerted themselves to tame the financial crisis, this is not the end of the story; the crisis will continue to disrupt markets and threaten the already fragile economy,ö Xav says. ôThere is no escape from the financial hurricane, and the global economic outlook is now entering a major downturn and faces a most dangerous shock.ö
Average performance of fund groups in China in September:
Bond CNY +1.54%
Money Market CNY +0.28%
Mixed Asset Other Conservative -1.31%
Target Maturity -2.53%
Mixed Asset CNY Balanced -4.25%
Mixed Asset CNY Flexible -4.42%
Mixed Asset CNY Aggressive -5.22%
Equity China -6.61%
Top performing QFII funds in August:
ABN AMRO China A Share Fund -0.61
APS China A Share -2.17
PCA China Dragon A Share Equity A-1 Class C -5.05
Morgan Stanley China A Share Fund Inc -7.87
Nikko AM China A Stock Fund -10.50
Nikko China A Share Fund 2 -10.54
Global investors are advised to look selectively at Japanese equities as the country recovers from lockdown and continues to improve corporate governance.
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