A woman pays close attenion to stock information in the city of Huaibei, Anhui province, on July 28, 2014. [Xie Zhengyi/Asianewsphoto]

Biggest quota holder records $256m net capital inflow this week for ETFs

Foreign investors are sticking with the market and buying more A shares, according to analysts, optimistic of a further easing in the financial conditions, despite the China equity market undergoing an obvious correction over the past week.

The biggest foreign investment quota holder in China, Hong Kong-based CSOP Asset Management, said it has recorded 1.6 billion yuan ($256.4 million) of net capital inflow into its FTSE China A50 Exchange-Traded Fund account this week, the biggest influx of funds this year.

The FTSE China A50 ETF is run under China's Renminbi Qualified Foreign Institutional Investor program, which offers a channel for offshore investors to trade China's A shares.

"In the recent week, this RQFII ETF has been trading at a premium on the secondary market and has taken a large number of subscriptions," said Larry Wong, marketing manager of CSOP Asset Management. "That shows overseas investors are increasing their holdings of A shares."

The benchmark Shanghai Composite Index has tumbled almost 5 percent since Monday, with the losing streak gaining momentum especially since Wednesday after the People's Bank of China, the central bank, abruptly announced a 50 basis points cut in banks' reserve requirement ratio, which economists think could inject more than 600 billion yuan of liquidity into the economy.

The benchmark SCI dropped 1.2 percent on Thursday and another 1.9 percent on Friday to 3,076.64, which some analysts put down to profit taking as the RRR cut rumor finally became a fact.

The market has been cooling down from last year's rally, with sentiment falling sharply before the upcoming Chinese Lunar New Year, which begins on Feb 19.

It appears, however, that foreign investors are still reluctant to turn their backs on it.