Bank of Korea holding out for QFII quota

Bank of Korea says it hopes to invest in onshore Chinese securities as early as the first half of this year after it became the first of three Korean government entities to receive a QFII permit within a month.

The central bank, which has $310 billion in foreign exchange reserves, was awarded a qualified foreign institutional investor (QFII) licence by the China Securities Regulatory Commission (CSRC) on December 21.

That was just a week before the Korea Investment Corporation (KIC) received its QFII approval, on December 28. And earlier this month Korea’s National Pension Service (NPS) revealed that it, too, had received a QFII licence, although this has yet to be updated on CSRC’s website.

Choo Heung-Sik, who took up his post as director general of BOK’s newly restructured reserve management group on November 21, tells AsianInvestor that the central bank is intent on starting to invest in Chinese securities late in the first half of this year, pending confirmation of its quota.

Given that BOK was the first of the three Korean entities to receive official QFII approval, it can expect to be the first to receive a quota from China’s State Administration of Foreign Exchange. This it expects to be between $200 million and $300 million, Choo has said previously.

China has quickened its approval process for QFII licences this year, with a forecast that individual quota awards could be increased as well.

Choo notes that BOK plans to invest in Chinese A-shares for diversification and suggests its investment should be well timed, given that Chinese equities have suffered a rout (the CSI 300 Index dropped 25% last year).

Choo confirms that BOK plans to increase renminbi investments in onshore Chinese stocks and bonds on a gradual basis from a mid- to long-term perspective.

However, he stresses there will be no fundamental changes to its foreign reserve composition, with the emphasis still upon stability in portfolio management.

A QFII licence will be an interesting proposition for the central bank’s incoming chief investment officer and head of the newly created global corporate bond investment division.

Both positions the bank advertised for through an open recruitment process. The process was expected to be completed by early next month, with both candidates due to receive a three-year contract.

BOK’s aim in setting up the global corporate bond investment division is to increase efficiency within different asset classes, says Choo, but it will not necessarily mean a greater allocation to the asset class.

The bank previously invested in foreign corporate bonds, but under a different system and via various departments – the process will now be consolidated.