Two Taiwanese life insurers have become the first of their breed to be granted qualified foreign institutional investor (QFII) licences by mainland China’s regulator CSRC in a landmark move.
China Life Insurance and Shin Kong Life Insurance were among three institutional investors to receive QFII permits last month, with the other being the Monetary Authority of Singapore.
The insurers must now await the award of their QFII quotas from the State Administration of Foreign Exchange (Safe) before they can start investing.
They were among four Taiwan insurance companies to apply for QFII last year. Cathay Life and Fubon Life are still waiting.
Taiwan’s Financial Services Commission gave its domestic insurers the go-ahead to invest in stocks and bonds in China last August.
But, at present, the only asset class in China that Taiwanese insurers can invest in is real estate for their own use rather than as a commercial venture.
Winnie Huang, senior vice-president of China Life, tells AsianInvestor that the firm plans to apply for a $500 million quota from Safe, which, if approved, would be the largest single quota issued since the programme started in 2003.
“The size of $500 million sounds pretty high,” she admits, while stressing that the requirements of large life insurers are different to fund houses.
As at September 30 this year, Safe had approved a total of $20.69 billion in QFII quotes shared among 105 foreign financial institutions.
To date, the largest sum awarded in a single allotment is $300 million, which was first awarded to UBS back in 2003 (twice). More recently, the Hong Kong Monetary Authority also received $300 million.
Huang says China Life will buy A-shares and bonds via the exchange market, although she stresses that the investment strategy will depend on prevailing conditions at the time the quota is granted.
Taiwanese insurers are eager to diversify by adding renminbi-denominated assets into their portfolios to tap their upside potential and currency appreciation, notes Huang. “Among emerging markets, Taiwanese investors feel most comfortable with China,” she adds.
According to Taiwan regulation, insurers can invest up to 45% of their total assets overseas, of which the cap on RMB-denominated assets is 10%.
The China Securities Regulatory Commission (CSRC) has awarded seven QFII licences to Taiwanese financial institutions so far.
Five have gone to security investment trust companies (Sites), namely Capital and Fubon in an initial batch in October 2010, followed this year by Polaris in March and Cathay and Fuh Wah in June. Fubon and Capital each received a $100 million quota this March.