Hong Kong to Benefit as China Liberalises Investment Regime

The China Banking Regulatory Commission (CBRC) has agreed to loosen regulations which determine how much domestic institutions can invest overseas. The first stage of liberalisation took place last year, with the establishment of the Qualified Domestic Institutional Investors (QDII) Program, which introduced a quota system for members, and allowed investments in fixed-income products. Now the rules which determine what QDIIs can do have been broadened and clarified. They include setting a RMB 300,000 (USD 39,000) lower limit for individual subscriptions and allowing equities to reach 50% of every QDII product.

At present the QDII program is of limited size, mainly because the returns available from overseas fixed income products have not been able to match the appeal of the booming domestic share market. The changes open the way to releasing some of the estimated $4.6 trillion of savings accumulated in China. Gartmore’s Charlie Awdry, manager of the Gartmore China Opportunities Fund, believes that Hong Kong may be the key beneficiary.

“Hong Kong is an authorised market recognised by CBRC, and QDIIs will be able to gain access to Hong blue-chip Kong-listed stocks such as Petrochina and China Mobile that are not available to domestic investors. Many dual-listed stocks are trading at a significant discount in Hong Kong. The market as a whole is rated at around 20 times earnings, much more cheaply than the 41 times on offer in Shanghai.”

The bulk of Gartmore’s exposure to the rapidly growing Chinese economy is held via Hong Kong.