Total QFII quota to triple to $30bn by year-end

CSRC chairman Shang Fulin says he is keen to bring in more institutional investors to stabilize the A-share market.
China Securities Regulatory Commission (CSRC) chairman Shang Fulin says the aggregate quota for QFII will be raised to $30 billion by year-end from the current $10 billion.

Shang hopes the move will further investor education in China and consolidate the market structure to include more institutional investors, which he believes would help stabilize the local stock markets. Shang made the remarks at the China Central Financial System Conference in Beijing earlier this week.

The Qualified Foreign Institutional Investors (QFII) program enables approved institutions to invest in China. In end-2006, 52 organizations were part of the list of approved QFII organizations. Their total investments into the local A-share market has reached Rmb971 billion ($12.94 billion). Around $7.9 billion of these investments are in QFII mutual funds.

The average return of QFII funds over the past year stood at 240.57%. The performance of QFII funds about at par with ChinaÆs domestic fund houses, which delivered an average return of 240.18% over the same period, says Zhou Liang, head of research at Lipper in Shanghai. The benchmark Shanghai/Shenzhen 300 Index was at 297.7% over the same period.

However, as the A-share marketÆs growth slowed down to 5.36% in September, more punters have taken profits, and there has been a greater redemption rate compared to July and August. This monthÆs net redemption rate has so far reached $1.4 billion.

Liang notes that China stock markets have matured exponentially in just a few years. However, there are now fewer windows for fund houses to take advantage of market inefficiency, by prompting research efforts. Excess liquidity is plaguing a lot of the fund houses, which now carry oversized cash positions in their portfolios, dampening return to capital.

Recent additions to the QFII funds pool include HSBC China Dragon Fund, AMP Capital Growth, Prudential-BOCIÆs W.I.S.E.-CSI China Tracker Fund and Lyxor China A Fund. Of the 13 funds tracked by Lipper in its latest report, the Morgan Stanley China A Share Fund posted the highest return of 13.6% over the past month, or 299.55% over the past year.

HSBC Dragon Fund follows came in second, delivering a 13.3% return since its recent launch in August. Nikko Asset Management occupies both the third and fourth place with its Nikko China A Share Fund 2 and Nikko AM China A Stock Fund, which delivered 5.11% and 5.09% in returns, respectively.

At fifth place is JF China Pioneer A-Share A Fund at 4.7%. It is also one of the highest performing fund over the year, delivering an annual return of 269.34%. At sixth to 10th place are iShares FTSE/Xinhua A50 China Tracker Fund, AMP Capital China Growth Fund, W.I.S.E-CSI 300 China Tracker, Fortis FLEXIFUND Equity China A and ING China A Share Fund P Class.
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