QDII fund quotas doubled

ChinaAMC vows its upcoming QDII mutual fund will receive similar subscriptions to China SouthernÆs RMB50 billion debut.
As more mutual fund companies in China prepare to launch their first products under an expanded qualified domestic institutional investor (QDII) regime, regulators are responding to the massive demand by doubling the fund size quotas.

On 12 September, Shenzhen-based China Southern Fund Management introduced its first (and the industryÆs second) QDII fund which raised an unprecedented RMB50 billion ($6.55 billion) in subscriptions.

This far exceeded the $2 billion quota on QDII funds imposed by the State Administration of Foreign Exchange (Safe), the central bankÆs foreign exchange arm. Safe has now doubled the quota to $4 billion. This relieves some pressure on China Southern, which has already returned the oversubscribed amount to investors, who were allocated almost 62% of the shares they applied for, says Zeng Yihan in the firmÆs business department.

The government is eager to see QDII serve as a brake on the renminbiÆs appreciation and let out some of the steam in the overheating A-share market. But it is also responding to popular demand. Several companies are about to launch their own QDII funds and hope to garner similar support from investors.

The industryÆs largest firm by assets, China Asset Management (ChinaAMC), is launching its QDII offering on Thursday, 27 September. James Qiang, a representative for ChinaAMCÆs international business in Beijing, predicts another huge intake: ôWe wonÆt do any worse than Southern.ö The minimum investment is RMB1,000 and it will offer daily liquidity.

ChinaAMC has enlisted most of the major Chinese commercial banks for the launch, including China Construction Bank, ICBC, Agricultural Bank of China, Bank of China, Bank of Communications, China Merchants Bank, Minsheng Bank and China Postals Saving Bank, as well as a list of securities firms and its own direct sales û through the China AMC wealth management centres and online channels.

A team led by portfolio manager Yang Zhangheng has been sent to the trading floors of T. Rowe Price for intensive training in the US before trading starts. ôWe are here for direct investments. It will be a real fund consisting of stocks researched and chosen by our China team. We also have fund managers sent to the US to assist the investments,ö says James Qiang.

The new global fund aims for stable growth. 40% of the fund will be invested in Hong Kong-listed H-shares, with no specific limit on China-originated companies, and the rest of the portfolio will be invested worldwide through money market securities, international government bonds, convertible bonds, mortgage-backed securities, asset-backed securities, ordinary shares, blue-chips, global and US receipt deposits, and unspecified structured products.

It also employs derivatives to hedge US dollar exposure û underlining growing concerns on the appreciating renminbi among Chinese investors.

QDII products available on the market are mostly funds of funds constructed with ETFs, or existing fund from foreign investment houses, as in the case of Huaan Fund Management, the first fund house to provide QDII product, that is launched in 2006 as a test pilot scheme. Lehman Brother advised Huaan in a non-exclusive deal that allows the basket of funds to be revised in the future, says Annie Lui, a spokesperson for Lehman Brothers in Hong Kong.

HuaanÆs fund invested in structured notes issued by a special purpose vehicle that purchase guaranteed assets in zero coupon bonds or money market securities and four funds by Lehman Brothers covering global value equity, global bonds, US real estate and commodities.
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