New RQFII ETFs planned as Safe restarts scheme

After a four-month hiatus, China has kicked off its new Rmb200 billion RQFII programme, which has already led to a number of fund houses aiming to launch renminbi qualified foreign institutional investor (RQFII) ETFs.

HuaAn Funds tells AsianInvestor that the State Administration of Foreign Exchange (Safe) granted it an additional Rmb2 billion RQFII quota earlier this week. Market sources say China Universal Asset Management has also received additional quota, but the firm declined to comment.

Sources say both firms plan to launch RQFII exchange-traded funds – physically backed ETFs that directly invest in China A-shares – once they receive approval from Hong Kong’s Securities and Futures Commission (SFC). These products will track China’s benchmark CSI 300 index.

Da Cheng International Asset Management and Bosera Funds are also planning to roll out RQFII ETFs, say market sources.

There are four RQFII ETFs listed in Hong Kong: ChinaAMC CSI 300, CSOP FTSE A50, E Fund CSI 100 and Harvest MSCI China A.

At the moment, only two RQFII ETFs have confirmed they’ve received new quota – the CSOP A50 ETF and China AMC CSI 300 ETF, with each having obtained an additional Rmb2 billion on May 6 and 8, respectively.

AsianInvestor understands that CSOP A50’s total quota has grown to Rmb17 billion and ChinaAMC CSI 300 ETF’s to Rmb15 billion.

There is now speculation that Safe will become more prudent when granting quota in future. Market sources say the regulator grants applicants Rmb2 billion at a time, but that firms can immediately apply for new quota once it has sold out.

Approval of RQFII quota was put on hold in January after the initial programme's Rmb70 billion was issued. Safe and the People’s Bank of China (PBoC) then had to update the RQFII guidelines before starting the new Rmb200 billion programme. The PBoC released updated RQFII account guidelines last Thursday.

The RQFII programme was first launched in December 2011 to allow the Hong Kong subsidiaries of mainland fund managers to invest back into the onshore securities market. An initial quota of Rmb20 billion was awarded to 21 holders, with regulations stating that no more than 20% would be invested in equity and no less than 80% in fixed income.

The quota was increased in April 2012 by Rmb50 billion, with RQFII permit holders allowed to deploy their quotas into ETFs. Late last year, CSRC announced plans for the Rmb200 billion expansion of the scheme, in a move billed RQFII 3.