State funds get $1.2 billion more QFII quota

China continues to award increasingly chunky QFII quotas ever more swiftly. Last month two sovereign wealth funds hit $1 billion and eight asset managers received their first allocations.

The State Administration of Foreign Exchange (Safe) granted Abu Dhabi Investment Authority $500 million and Kuwait Investment Authority $700 million in additional quota. That takes them to $1 billion each, which was the limit for an individual institution until December, when Safe said it would raise the threshold for sovereign wealth funds, central banks and monetary authorities.

They join another five qualified foreign institutional investors (QFIIs) – all state-backed – with $1 billion in quota: the Government of Singapore Investment Corporation, Hong Kong Monetary Authority, Norway’s Norges Bank, Qatar Investment Authority and Singapore’s Temasek Fullerton Alpha Investments.

No QFIIs have been awarded more than this amount, but that’s likely to change soon, says Cindy Qu, an analyst at Shanghai-based consultancy Z-Ben Advisors. The Chinese government wants to encourage QFIIs to invest in the interbank bond market, which requires a big minimum investment, she notes.

However, Safe has also made good on its threat to potentially relieve QFIIs of quota that they have not allocated within the allotted two years. HSBC Global Asset Management (Hong Kong) last month returned $18 million to the regulator, reducing its total to $432 million.

Meanwhile, eight QFIIs have received quota for the first time: APS Asset Management and Hillhouse Capital Management each received $300 million; EFG Bank got $100 million; CDH Investment and Genesis Asset Managers each got $200 million; JP Morgan Asset Management Taiwan received $150 million; Public Mutual $60 million; and Uni-President Assets Management Corp $50 million.

The QFII approval process has noticeably quickened: Hillhouse received its QFII licence on December 11, and was granted a $300 million quota on January 24, little more than a month later.

Safe also granted more renminbi-QFII quota in January, thereby using up the Rmb70 billion quota for the first two batches of RQFII products.

China AMC and E Fund each received Rmb1 billion, Huatai Financial (Hong Kong) took in Rmb650 million and Harvest Global Investment got Rmb350 million. It is understood that E Fund will use the quota for a new pure fixed-income fund.

E Fund already has an RQFII fund – E Fund RMB Fixed Income Fund. The product just received an extra Rmb800million quota in December on top of its initial Rmb1.1 billion. The fund then re-opened its subscription through eight banks – around 20% of the new quota has so far been sold, with 40% going to institutions and 60% to retail investors.

The first Rmb20 billion batch of RQFII was launched in 2011, and in April last year the regulator expanded the programme by Rmb50 billion.

The China Securities Regulatory Commission said in November that the programme will be expanded by a further Rmb200 billion. Market sources say the rules regarding a third batch of RQFII will be announced soon, perhaps before the Chinese new year holiday.