China outbound investment trend holds key: Guosen
While most Chinese asset managers are busy with RQFII funds, Guosen Securities Asset Management Hong Kong is preparing to launch its first QDII product next month as it sees outbound investment from mainland China as a more important trend in the long term.
“There will be a significant amount of money outflow from mainland China,” predicts Daniel Li, the CEO. “This trend offers more opportunities than foreign investors accessing the onshore market. Therefore, QDII products are our main task in Hong Kong.”
Guosen Securities is one of the few (seven in total) securities companies in China that has obtained a qualified domestic institutional investor (QDII) investment quota from the State Administration of Foreign Exchange (Safe). Its quota of $500 million was approved last May and is the second largest for any securities company after CICC’s $1 billion, which was granted in 2007.
Guosen Securities AM expects to launch its first QDII product – Demographic Dividends – in February, which is an equity fund focusing on China, India and Indonesia, subject to approval by the Chinese Securities Regulatory Commission (CSRC).
“These three countries forge an Asian triangle, termed Chinadosia, which is home to 40% of the world’s total population and enjoys demographic dividends and has strong consumption demand,” Li notes. “Among the three countries, China focuses on manufacturing, India has a strong service outsourcing industry and Indonesia is abundant in natural resources.”
Guosen’s second QDII product will be an Asian fixed income fund, including Chinese corporate bonds issued overseas. “Within the existing product suite in the QDII space, fixed income products are still scarce,” Li points out. “That’s why we make a lot of effort in this asset class to fill the void.”
Li expresses confidence in Guosen’s fixed income investment capabilities as he led the launch of the first offshore RMB bond fund in Hong Kong when he served as managing director of Hai Tong Asset Management from 2008 to 2010. Dr Yang Jianxin, who used to manage the fund, also joined Guosen at the end of 2010 as deputy CEO.
As fund manager of the first offshore RMB bond, Dr Yang boasts hands-on knowledge and experience in the establishment, operation and investment of offshore RMB fixed income products.
However, at present QDII funds are not gaining much attention from Chinese investors. Data from Howbuy fund research centre shows that although the number of funds almost doubled from 28 in 2010 to 51 by the end of last year, total AUM shrank 20% from Rmb72.9 billion to Rmb58.1 billion.
Besides continuing uncertainty in global capital markets, investors’ lack of interest in QDII products over the past couple of years can partially be attributed to their expectations of RMB appreciation.
But Li foresees that the rapid appreciation pattern of RMB will soon hit a plateau, taking into account political/diplomatic pressure from the West as China’s trade surpluses decline to 2-3% this year. “We need to prepare and time the market to launch QDII products,” he says.