Foreign investors seek to increase positions in China's stock markets

An increasing number of foreign investors are expected to swarm into the Chinese capital market, as the potential investment value rises and the top regulator plans to ease the entry criteria.

An individual investor at a stock brokerage in Huaibei, Anhui province, on Monday. China's top securities regulator is easing the approvals for qualified foreign institutional investors, or QFIIs, to attract more long-term investment funds from overseas, which would help boost the domestic stock market. [Photo/China Daily]

The China Securities Regulatory Commission pledged to continue to speed up approvals for qualified foreign institutional investors, or QFIIs, at the end of the National Day holiday.

The commission is discussing with other relevant authorities income-tax policies for QFIIs amid the raising of foreign-investment quotas, and also about relaxing the restriction of cross-board fund flows, according to the CSRC.

Market analysts said that the top securities regulator has taken the stand to encourage more long-term investment funds from overseas, which would help boost the domestic stock market in the short run.

Li Daxiao, director of Yingda Securities Institute, said that a pile of QFII applications are prepared to be submitted to regulators, as the relatively lower stock index of A shares has indicated attractive investment opportunities.

On the first trading day after the National Day holiday, the benchmark Shanghai Composite Index fell 0.56 percent to 2074.42 at the Monday close. The valuation of the main board has fallen to about half of what it was in 2006.

Market investors continued to show weakened confidence amid concern that the deepening economic slowdown may further reduce companies' profits, and that the government appears reluctant to implement aggressive policy easing.

So far this year, the Shanghai Composite has fallen 5.7 percent.

In September, the country's manufacturing activities contracted for the second consecutive month and services sector growth cooled to its slowest in at least 18 months.

To encourage the reform of the capital market, the State Administration of Foreign Exchange has accelerated its processing of QFII applications. In the first nine months of this year, 72 foreign institutional investors have got the QFII quotas of $9.18 billion.

From the start of the QFII system in 2003 to the end of September, the total quota has reached $30.82 billion. Now 157 overseas institutions have obtained QFII licenses from China's securities regulator, the SAFE said.

The State Council increased total QFII quotas in April to $80 billion from the previous $30 billion.

In July, the CSRC announced new regulations for QFIIs, which had lifted the shareholding ratio roof for foreign shareholders and lowered the requirements of QFII applications.

Overseas-fund providers can hold 30 percent of the stocks of one company, compared with 20 percent before, which is a signal of an advanced opening-up reform to roll up the domestic capital market in the future, the CSRC said.

Recently, Chinese financial institutions, including the Shanghai and Shenzhen stock exchanges as well as the China Financial Futures Exchange, held investment roadshows in Canada, Europe and some Asian countries, introducing the domestic capital-market development conditions and policies to foreign pension funds and other investors, Shanghai Securities News reported.

Foreign institutional investors showed their interest on easing QFII rules, supported by the optimistic outlook about Chinese economic growth in the future, and many of them desire to add investment weight into the A-share market, according to the Shanghai news media.

"The approval for QFII quotas in the future is expected to continue to speed up," said Luo Yi, an analyst with the China Merchants Securities Co Ltd.

The CSRC policy easing can help improve the efficiency of QFII investments and increase domestic stock market liquidity by absorbing more foreign long-term funds, Luo said.

The top securities regulator also announced that investors with QFII quotas can invest in the interbank bond market and in privately raised corporate bonds for small and medium-sized enterprises, to diversify their investment portfolios.

chenjia1@chinadaily.com.cn