Temasek to ramp up China investment

Jun 14, 2012

The sovereign fund has applied for a new $700 million QFII quota as regulators reportedly consider raising the $1 billion cap.

Fullerton Fund Management was one of seven to be granted a QFII licence yesterday, even as its parent, Temasek, applies for a huge quota increase amid reports that regulators may raise the $1 billion cap.

Fullerton received its permit along with Eurizon Capital (Luxemburg), BOCI-Prudential Asset Management (Hong Kong), Lion Global Investors (Singapore), Generali Fund Management (Luxemburg), William Blair (US) and Investec Asset Management (UK).

The latest batch of approvals by the China Securities Regulatory Commission (CSRC) takes the number of qualified foreign institutional investors in China to 165.

Fullerton is now in the process of applying for an investment quota of $250 million from the State Administration of Foreign Exchange (Safe) to set up an open-ended China A-share fund for external investors, according to Chinese media.

It comes after Ding Wei, head of China at Temasek, told the China Securities Journal – one of CSRC’s official newspapers – that it was applying for an additional QFII quota of $700 million. He pointed to what he described as the good mid- to long-term potential of the country’s capital markets, particularly blue-chip stocks.

Temasek began investing in China’s A-share market over six years ago, with Temasek Fullerton Alpha Investments having been awarded its QFII licence in November 2005 and two quotas totalling $300 million ($100 million in December 2005 and $200 million in September 2009).

If Temasek Fullerton Alpha obtains $700 million - which would be a record amount - Temasek would hit Safe’s $1 billion cap for QFII quotas. Its subsidiary Fullerton Fund Management has a separate licence and as such its quota would not count towards Temasek’s total.

But just last month the China Securities Journal reported that the $1 billion cap may be increased, pending agreement between the two regulators, CSRC and Safe.

Sovereign wealth funds and pension funds are pressing for additional QFII allowances. Norges Bank (with $700 million approved), Abu Dhabi Investment Authority ($200 million) and Canada Pension Plan Investment Board ($100 million) are all reportedly applying for further quotas.

Beyond Temasek, Singapore’s two other government-backed financial institutions – GIC and MAS – have also prioritised investment into China’s domestic securities market.

The Government of Singapore Investment Corporation won its QFII licence in 2005 and has received $400 million via three quotas (2005, 2008 and 2012); and the Monetary Authority of Singapore obtained $100 million after its licence was granted last October.