China’s maturing QFII program for foreign investors to invest in the China A-shares market is set to cause significant upheaval for fund managers and pension funds, according to a special report from Z-Ben Advisors.
The Shanghai-based funds management research firm says in the report, entitled “QFII: An Evolution and Revolution”, that this year will by far be the most interesting since the program was born in 2002.
The three big sets of changes are:
- the development of the alternative RQFII market, launched in 2011, which allows the reinvestment of renminbi assets from outside China, which already suits many fund managers better
- the massive expansion of the quotas of both QFII and RQFII even though demand has been stagnant for nearly two years. The QFII quota now stands at US$150 billion but the take up is only US$46 billion as of August.
- continuing planned reforms designed to further broaden access to other asset classes, notably fixed interest and alternatives.
Z-Ben is tipping a surge in demand over the next 12 months. “The welcome mat is out and no-one wants in, yet when the show really starts all the best seats are likely to be taken,” the report says.
“The environment for direct investment into the Mainland is now more favourable to global players than ever before, with a stagnant A-share market and the need to reform having pushed regulators to open cross-border programs at a pace that would previously have been unimaginable. By the end of 2014, every current and future participant will be thinking about QFII in a new way…”
The report says that the potential value of a QFII commitment will need to be rethought in light of the opportunities afforded within RQFII and elsewhere.
“Providers of Greater China funds are going to face particular upheaval, as their market fractures into varying flavours or real and synthetic China exposure, just as index providers throw a spotlight on the region.”