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Wednesday October 10, 9:33 PM
Strong start for QDII fundsBy dollarDEX.com
The launch of new QDII funds in recent weeks has been met with extremely enthusiastic response from China's retail investors. The series of announcements over the past few months regarding the liberalization of China's investment laws has resulted in a rally of the Hshares but the spillover effect appears now to be also spreading to China shares listed in other markets like Singapore. Last weekend was also the official launch of the China Investment Corporation, the country's Sovereign Wealth Fund. Below we provide a brief update on the China investment scene. QDII subscriptions much larger than expectedWhen China Southern Asset Management launched its Global Selected Allocation Fund last month, the subscription period was originally scheduled to run from 12 September to 28 September. The fund was however closed on the first day when subscriptions hit RMB50bn (US$6.67bn). This was way above their initial target and QDII limit of US$2bn. The regulators however expanded China Southern's QDII quota, allowing the size of the fund to be doubled to US$4bn. The mandate of the Fund is to invest in global stock markets. The fund manager is understood to be targeting five developed market and five emerging markets: the US, Japan, Switzerland, Italy, Hong Kong, Russia, India, Brazil, Malaysia and South Korea. 40% of the fund is expected to be invested in Hong Kong and 60% in global markets through fund of funds. The sub-advisor of the fund is Bank of New York Mellon Asset Management.China Asset Management's QDII fund, launched last Thursday, drew an even higher level of subscription. It attracted US$8bn, exceeding the limit of US$4bn, and the subscription period also closed early. The fund will invest in overseas stock markets including the US, Europe, Japan, Hong Kong and other emerging markets. The consultant to the fund is the T. Rowe Price Group.
The QDII scheme (Qualified Domestic Institutional Investor) was actually launched in April 2006 but had a very slow start partly because of restrictions in what the QDII funds could invest in and partly also because of the strong performance of the domestic A-share market. Under the old scheme, banks and insurance could only offer overseas fixed income products with overseas equity products restricted to asset management houses. Under the latest QDII guidelines, banks and insurance companies can now offer equity (up to 50% of their QDII quota) as well as fixed income products. QDII equity products have also been extended to securities houses. The range of overseas markets allowable under the scheme has also been widened. Premium between A-shares and overseas China shares likely to continue to narrowChina's domestic A-shares (the Shanghai and Shenzhen markets) trade at a huge premium to the China shares listed on the other markets like Hong Kong, Singapore and the US. One reason for the huge premium is that until recently, China retail investors were only able to invest at home and this trapped liquidity has led to what is generally acknowledged to be excessive valuations. China's A-shares are trading at a forward PE of 35x compared to a forward PE of 21x for the Hong Kong listed H-shares.The discount between the A-shares and the H-shares has however begun to narrow. The rally in H-shares has been particularly noticeable since the announcement on 20 August that China retail investors will be allowed to personally invest in Hong Kong listed stocks i.e. they do not need to invest through QDII funds. As at 1 October, H-shares as measured by the Hang Seng China Enterprise Index (HSCEI) have rallied 55% since the 20 August announcement. The official date of this individual investment scheme, now known as the "through-train to Hong Kong", has not yet been announced as the authorities are fine-tuning the details. The individual investment scheme is a complement to QDII. Both individual investment and investing through funds are popular in China. Domestic funds under management grew by 132% in the first seven months of 2007. China's Sovereign Wealth Fund likely to invest in broad range of risk assetsChina's Sovereign Wealth Fund, China Investment Corporation (CIC), was officially launched last week. Sovereign Wealth Funds are investment funds which are carved out of foreign exchange reserves. Foreign exchange reserves are usually invested in US and other G7 government bonds. The CIC will start with an initial sum of US$200bn, making it one of the largest Sovereign Wealth Funds in the world. China holds US$1.4tn in foreign exchange reserves. Sovereign Wealth Funds are typically created for diversification purposes and also to increase returns. They typically invest in riskier asset classes including equities. By nature, Sovereign Wealth Funds do not reveal their investment strategies but there have been reports that the CIC could be outsourcing the management of its portfolio so as to minimise political controversy. There has been growing political pressure for Sovereign Wealth Funds to be open to more scrutiny given their increasing presence and potential muscle in financial markets.Source: UOB Asset Management Ltd Company Important Notice & Disclaimers I This publication shall not be copied, or relied upon by any person for whatever purpose. The information herein is given on a general basis without obligation and is strictly for information only. This publication is not an offer, solicitation, recommendation or advice to buy or sell any investment product, including any collective investment schemes or shares of companies mentioned within. Although every reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this publication, UOB Asset Management Ltd and its employees cannot be held liable for any errors, inaccuracies and/or omissions, howsoever caused, or for any decision or action taken based on views expressed or information in this publication. The information contained in this publication, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available as at the date of this document and reflects prevailing conditions and our views as of the date of the document, all of which are accordingly subject to change at any time without notice. UOB Asset Management does not warrant the accuracy, adequacy, timeliness or completeness of the information herein for any particular purpose, and expressly disclaims liability for any errors, inaccuracies or omissions. Any opinions, projections and other forward-looking statements regarding future events or performance of, including but not limited to, countries, markets or companies are not necessarily indicative of, and may differ from actual events or results. Nothing in this publication constitutes accounting, legal, regulatory, tax or other advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person. You may wish to seek advice from a professional or an independent financial adviser about the issues discussed herein or before investing in any investment or insurance product. Should you choose not to seek such advice, you should consider whether the investment or insurance product in question is suitable for you. UOB Asset Management Ltd Company Reg No. 198600120Z
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