Plan to quadruple RQFII quota whets appetites

Fund managers say greater flexibility in product design is imminent after the chief of China’s securities regulator pledged to quadruple RQFII quotas.

Guo Shuqing, chairman of the China Securities Regulatory Commission (CSRC), said this weekend that it would raise overall RQFII quota by Rmb200 billion ($32 billion) in response to a request from authorities in Hong Kong, since the existing Rmb70 billion quota was insufficient to meet demand.

No time-frame was given, although Guo hinted at further liberalisation to come, saying more institutions would be allowed to participate in the renminbi qualified foreign institutional investor (RQFII) programme.

He added that some restrictions on product development would be removed. He was speaking at a press conference as the ruling Communist Party convenes in Beijing to unveil the nation’s political leaders for the next decade.

The lack of specifics from Guo led the industry to speculate on what to expect, mostly around greater freedom in product design in accordance with a provider’s financial strength and capabilities.

“In mainland China our fund managers are experts at running actively managed funds, so [more flexibility in design] would mean we could bring our track record and research capability to the Hong Kong market,” says Freddie Chen, managing director at China AMC.

He is excited by the prospect that fund houses will be allowed to develop different types of RQFII product, given present limitations and the consequent problems of differentiation.

Authorities launched the RQFII scheme last December with an initial Rmb20 billion quota, including strict guidelines that no less than 80% could be invested in fixed income and no more than 20% in equity.

A second Rmb50 billion batch in additional RQFII quota was signed off this April, allowing qualified providers to issue A-share ETF product.

But complaints have surfaced that RQFII products are all alike, so Guo’s latest announcement, which is being dubbed RQFII 3.0, has been broadly welcomed.

“As a fund manager, what we need is more flexibility in asset classes and asset allocations,” says Nathan Lin, managing director for E Fund Management (HK) “For example, a fund manager can run a separately managed account for a client.”

Apart from new asset classes, fresh quota will likely be allocated to existing RQFII product. Lin confirms that E fund has applied for additional quota for its bond fund, which currently has Rmb1.1 billion.