Korea-based asset manager NH-CA plans to launch its first onshore A-share equity fund next month, after the firm received a Rmb1.5 billion ($240 million) RQFII quota.
The fund launch will capitalise on Korean retail demand for China equities, appetite for which has grown strongly since stocks rebounded late last year.
It comes as Korea sees a flurry of applications for the cross-border renminbi trading scheme, with Rmb11 billion in quota handed out in five months.
NH-CA, a Korean-French joint venture, plans to allocate half of the quota it received last month into China equities and the other half into bonds. The bond fund’s launch date has not been confirmed since it has yet to receive People’s Bank of China approval for interbank bond market trading.
The joint venture - between Korea’s NongHyup Financial Group and France’s Amundi Asset Management – was given its RQFII licence by the China Securities Regulatory Commission (CSRC) last December, and was awarded the quota from China’s State Administration of Foreign Exchange (Safe) on February 13.
The fund house plans to structure its A-share investments through a Seoul-based investment team at NH-CA and a Hong Kong-based RQFII investment team at Amundi. They will be advised by a Shanghai-based investment team at ABC-CA Fund Management, which is a joint venture between Amundi and Agricultural Bank of China. The upcoming renminbi bond fund is likely to adopt a similar investment structure.
NH-CA, which had W16.9 trillion ($15 billion) in AUM as of the end of 2014, manages two China equity funds investing in offshore China stocks, while the firm does not hold any qualified foreign institutional investor (QFII) quota.
This A-share fund will mainly focus on retail investors and distribute through the firm’s existing sales channels via banks and security firms.
The firm has found that retail investors have more demand for A shares since they rebounded in the fourth quarter of last year. However, most fixed income demand is coming from institutional investors because China’s onshore interbank bonds are offering a higher yield than equivalent bonds in Korea.
The CSI300 index, a combined benchmark of the Shanghai and Shenzhen markets, has soared 43.8% since October 8 last year. China’s 10-year government bond yield was 3.57%, higher than the 2.38% of Korea’s own 10-year government bond yield, as of March 10.
RQFII, a cross-border scheme which gives foreign investors access to Chinese equities and bonds, is spreading quickly in Korea as licence and quota approvals have accelerated over the past four months.
Seoul was awarded a total quota worth Rmb80 billion in July last year. The first licence in Korea was awarded to Shinhan BNP Paribas Asset Management last October, and 11 Korean firms have received the licence as of January. Shanghai-based consultancy Z-Ben Advisors has said it expects more than a dozen Korean applications for the licence, as reported.
After Shinhan BNPP won the first RQFII quota in November last year, Mirae Asset Global Investments followed in January. NH-CA, Tong Yang Asset Management, Dongbu Asset Management and Korea Investment Management won fresh quotas in February. In all, six Korean have firms won a total of Rmb11 billion in RQFII quotas.