Earlier this week, the China Securities Regulatory Commission scrapped the QDII rule to try to improve the “southbound link” by encouraging more institutional funds to use the programme and invest outside of China.
“The initiative’s rule-change is an important signal that the Chinese want the programme to be a success, particularly with the southbound link which so far has been a rather deserted kind of tunnel”, said Karine Hirn, co-founder of asset manager East Capital.
Since its launch in November last year, the Hong Kong-Shanghai Stock Connect pilot scheme – an investment channel connecting the stock exchanges in the respective regions – has had a disappointing turnout, only attracting hedge funds and investment banks, according to the Financial Times.
There have been concerns about the custody of Shanghai-listed shares, with many investors fearing they would not have any beneficial ownership in the shares under Chinese law. While many Chinese fund managers have not been able to utilise the Stock Connect scheme because mutual funds have needed a QDII licence in order to purchase overseas equities.
“Still narrow”
“Domestic product range and channels for overseas investments are still narrow, constraining the scope of asset allocation,” said chairman of the China Securities and Regulatory Commission (CSRC), Xiao Gang, during an Asian Financial Forum earlier this year.
“This calls for further financial cooperation between mainland China and Hong Kong, mutual recognition of funds, and improved QFII, RQFII and QDII arrangements, in order to drive forward the development of cross-border wealth management business between the two regions.”
