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QDII program has limited impact on A-shares

(chinadaily.com.cn)
Updated: 2007-06-22 14:42

Following the lead of banks, securities and fund management companies will soon launch their investment plans as the Qualified Domestic Institutional Investors (QDII). But according to securities insiders, due to the limited QDII scale in the early stages, the domestic A-share market will not be greatly affected by the outflow of funds.

The China Securities Regulatory Commission recently announced rules allowing eligible securities and fund management companies to get QDII licenses. To qualify, securities companies must have a net registered capital of more than 800 million yuan (US$105 million) and at least one year's asset management experience. Fund management firms are required to have net assets of over 200 million yuan and at least two years' experience in stock investment.

Currently, there are nine securities companies and nearly 20 fund management companies meeting the above requirements.

A report from China International Capital Co Ltd predicts that the QDII program will have a limited impact on the A-share market. Many securities and fund management companies are not very knowledgeable about overseas markets; their investment may focus on the H-share market in Hong Kong. Due to the recent red-hot A-share market, their enthusiasm for overseas investment is not so high, says the report.

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According to a researcher from Shenyin Wanguo Securities Co, regulators promoted the QDII program for two major reasons. One is to help domestic investors diversify market risks and participate in international capital management. The other is to reduce the excessive capital liquidity and ease the appreciation pressure of the renminbi, rather than divert money away from the domestic stock market.

A director from the research department of a fund management company sees QDII a great boost to the Hong Kong stock market. "The recent trading volume of all H-shares has jumped to HK$100 billion (US$12.98 billion) from the previous HK$60 billion. Stocks related to the mainland economy perform particularly well," he said.

Opposite opinions are voiced by Tang Xiaosheng from Guoxin Securities Co. Tang thinks the QDII rules may be one of regulators' measures to control the overheated market. Over-priced stock and expectations of capital outflow will bring pressure to the A-share market, particularly, after regulators tripled the stamp tax for stock trading in A-share market. As a result, H-shares have become more attractive not only in terms of price but also in transaction cost.

However, Tang believes many industries and enterprises have benefited a lot from the booming Chinese economy, which will significantly increase their revenues. "After the interim reports were released, the stocks of most companies will go through a revaluation. The upward trend of the A-share market will not change in the long run," he says.