[-gg, those who count on Chinese investors to be last bagholders might be disappointed<g>]--"OFFSHORE INVESTING OUT OF FAVOUR
ftchinese.com
By Jamil Anderlini
Monday, February 25, 2008
According to a survey by a Chinese securities journal last week, more than half of Chinese individual and institutional investors think domestic investors do not have the knowledge or skills necessary to invest wisely in global markets.
That pessimistic view is reflected in the performance of the first Chinese mutual funds based on offshore investments, all of which are down more than 20 per cent since they debuted late last year.
The avalanche of retail interest in offshore investments last year has evaporated as the markets drop and China's so-called qualified domestic institutional investor (QDII) scheme once again falls out of favour.
Last year, following a groundbreaking reform, Chinese fund managers launched four funds dedicated to investing abroad, all of which sold out within hours of opening to subscriptions and received many times the offshore investment quotas of $5bn (£2.5bn, €3.4bn) each granted to them by the Chinese government.
In stark contrast, the fifth such fund - the Industrial and Commercial Bank of China Credit Suisse China Opportunity Global Equity Fund , launched in early January - took a full month to try and fill its quota of $3bn and is predicted to have raised just a fraction of that amount.
Instead of bombarding customers with an array of exotic offshore equity-based products, most Chinese fund companies are now offering conservative fixed income funds that reflect a new-found risk aversion brought on by a broad-based drop in global markets.
Mainland Chinese stocks have fallen more since their peak in October last year than most global markets, although the benchmark index still managed to end the year up 97 per cent.
In this environment, Chinese investors who put their money in offshore-based investments could have expected to fare better in recent months than if they had put it into the local market. But unfortunately for them, the bulk of "overseas" nvestment has been inHong Kong, where stocks have fallen in line with their counterparts on the mainland.
China still operates a largely closed capital account, strictly controlling the flow of funds in and out of the country's capital markets, but the former British colony of Hong Kong has long been integrated into the global economy and is regarded almost as a separate country when it comes to economic matters.
"It was the choice to stick closer to home which ended up hurting returns," according to Z-Ben Advisors , a China-focused consultancy. "The Hong Kong market operates quite differently as compared to the mainland and trading patterns are subject to the decision-making process of numerous, not to mention large, international institutions. This proved costly as global equity sentiment grew risk adverse and led to a sell off in the Hong Kong market."
It has been nearly two years since the tentative launch of the QDII programme and in that time investor reception to the scheme has swung wildly between boom and doom.
After an initial euphoric reception two years ago investors largely shunned the QDII products on offer from banks as they were originally limited to offshore fixed income products, which were unattractive given the steady appreciation of the renminbi versus the dollar and the newly resurgent domestic stock market.
But when the government expanded the scheme to allow Chinese citizens their first legal exposure to overseas stocks, demand for new QDII products soared.
Despite these oscillations in sentiment the government has continued to rapidly expand the scheme to the point where a total of 21 banks, 15 fund management companies, eight securities brokers and an estimated 20 insurance companies have all been given the green light to invest a combined estimated total of almost $85bn abroad, with many more quotas yet to be handed out.
On aggregate, banks have only invested one quarter to one third of the $16.6bn in total offshore investment quotas they have been given. The government is yet to announce detailed regulations and quotas for insurance companies but the direction and intent is clear.
Inflows to China's official foreign exchange reserves averaged around $40bn a month last year, pushing the total to $1,530bn by the end of December and placing enormous pressure on the government to allow more money to leak out from the country's largely closed capital account.
The State Administration of Foreign Exchange has made it clear to QDII applicants that there are a lot more quotas available, and analysts say the government's support for the scheme will eventually re-ignite enthusiasm among domestic investors.
The QDII scheme's long-term future is further assured by the apparent cancellation of a plan announced in September last year that would have allowed Chinese individuals to invest in Hong Kong stocks directly without having to go through a large institution.
The government has decided the Hong Kong "through-train" scheme (as it is known in Chinese) risked large-scale capital flight and could trigger a collapse in domestic valuations. Efforts to recycle foreign reserves out of the country now appear to be concentrated on the QDII programme.
While demand for QDII products is likely to remain weak in the immediate future, further problems for domestic stocks could convince investors that their money is better off in more mature markets.
"Because global markets have fallen so much, China's retail investors have become risk averse, but ironically this is a better time to buy than in the fourth quarter of last year when there was so much enthusiasm for QDII products," says Jing Ulrich, chairman of China equities at JPMorgan
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This Jing Ulrich is an idiot<g>. yes, it is true now is better time to buy comparing to last Dec., but the best time to buy has NOT come yet! |
