CSRC introduces raft of QFII relaxations
China's securities regulator has moved to allow different subsidiaries under one group to apply for separate QFII licences among a raft of relaxations on the procedures for applications and quotas.
The China Securities Regulatory Commission (CSRC) has also granted flexibility in QFII asset allocation, amid changes revealed at a meeting attended by QFII custodian banks last week.
These appear in place already. Fullerton Fund Management, a subsidiary of Singapore sovereign wealth fund Temasek, received its qualified foreign institutional investor licence last week. It comes after Temasek Fullerton Alpha Investments obtained its QFII permit in November 2005.
The CSRC did stress, however, that it will monitor trading activities of group subsidiaries together to ensure compliance.
In further amendments, the regulator will also allow firms that have partly used an initial quota to sell structured products to apply for additional quota from the State Administration of Foreign Exchange (Safe), on the proviso that the additional quota is not used to issue structured products.
Up until now, if a firm had issued such products via its QFII quota, it would not even be considered for a second quota.
The CSRC also relaxed limits on asset allocation, having ruled in 2010 that QFII investors had to allocate at least 50% in equities and no more than 20% in cash. From now on they can allocate to asset classes including equity and fixed income flexibly, albeit the 20% cap on cash remains.
But one thing that has not changed is that long-term investors such as pension funds will continue to be given priority in the applications process, with hedge funds still being kept out of the loop.
These QFII relaxations have been announced after Sun Lujun, director of Safe's capital management department, published an article this month suggesting that China raise the investment limit on QFIIs as well as qualified domestic institutional investors.
By the end of last month the CSRC had granted 163 QFII licences. The most recently approved are Prescient Investment Management (South Africa), Dongbu Asset Management (Korea), Janus Capital Management (US), Mizuho Asset Management (Japan) and Henderson Global Investors (UK).
Meanwhile as of May 8, Safe had granted $26 billion in QFII investment quotas. Japan’s Dai-ichi Life Insurance ($50 million) and Sumitomo Mitsui Banking Corporation ($100 million), Bank Negara Malaysia ($200 million), Russell Investments Ireland ($100 million), and Taiwan’s Prudential Financial Securities Investment Trust ($70 million), TransGlobe Life Insurance ($150 million) and Fubon Life Insurance ($150 million) have all obtained new or additional quotas so far this month.
China has quickened the pace of opening up its capital markets. Last month, the CSRC announced plans to increase total quota for the QFII scheme to $80 billion, from $30 billion, and released a second batch of RQFII quotas of Rmb50 billion ($7.92 billion) to be used for A-share exchange-traded funds (ETFs) listed in Hong Kong.