Business / Markets

Making the case for small state

By Gast Juncker (China Daily) Updated: 2014-03-17 07:23

Investments in China and exposure to the yuan are already possible through various solutions in Luxembourg. The most relevant are the Undertaking for Collective Investments in Transferable Securities and Specialized Investment Funds.

UCITS are investment funds domiciled in a EU member state and organized under the UCITS Directive.

Their main objective is to invest in transferable securities and/or other eligible liquid financial assets, namely money market instruments, units of UCIs, deposits with credit institutions and financial derivative instruments.

Since their inception in the year of 1985, UCITS have become the only globally recognized investment fund brand offering a high level of protection to investors and investment fund cross-border marketability not only in the European Union (through a European passport) but also across other countries in Europe, Asia, the Middle East and South America.

In Hong Kong, the Luxembourg UCITS represent the majority of funds registered with the SFC for public offering.

UCITS have been strengthened by their capacity to accompany the internationalization of the yuan.

Luxembourg UCITS have been authorized to invest up to 100 percent of their net assets in bonds traded on the Hong Kong Offshore RMB Bond market since 2011.

Last year the Luxembourg supervisory authority has authorized UCITS using an RQFII quota to invest up to 100 percent of their net assets directly in China A shares.

UCITS can also increase their exposure to the Chinese markets through investments in other funds, such as Hong Kong-domiciled funds, or eligible China access products.

Important talks are taking place on the acceptance of the China Interbank Bond Market as eligible investment for UCITS, which would open the bulk of the Chinese Fixed Income market to UCITS through the use of the RQFII quota.

The author is a partner of the Luxembourg-based law firm Elvinger, Hoss & Prussen, which has offices in Hong Kong. The views do not necessarily reflect those of China Daily.