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Shenzhen proposes to raise QFII quota

(Shanghai Daily)
Updated: 2007-05-09 14:38

China should drastically raise the quota it places on overseas investors who buy domestic shares, the Shenzhen Stock Exchange said in a recent report.

The limit should be expanded to 10 percent of mainland stock market capitalization in five years, from a ratio of 1.09 percent last year, the bourse said.

The ceiling for the qualified foreign institutional investor (QFII) scheme should be lifted to account for 3 percent of the total market value in 2008, the Shenzhen Stock Exchange said.

Meanwhile, the upper limit for the qualified domestic institutional investor program should be equal to 5 percent of the mainland equity market's value by 2008, up from 1.20 percent in 2006, according to the report.

The QFII scheme allows select overseas institutions to trade yuan-denominated securities under individual quotas, while the QDII arrangement lets domestic financial firms help citizens invest in financial instruments abroad.

"Overseas investors are still largely restricted in terms of the amount of equity holdings and capital inflows on the mainland stock markets," said Wang Yixuan, an analyst at Shenzhen exchange's research institute.

But the deregulation should be gradual "due to weak market fundamentals such as lack of competitiveness in mainland brokerages and an incomplete system to protect minority investors," Wang said.

The note from the Shenzhen bourse suggested that authorities support development of bigger and stronger domestic brokerage houses as soon as possible before further opening up the industry to foreign competition.