Foreign investors get new investment quotas (08 Sept 2005)

China has begun dishing out US$6 billion in quotas to foreign firms to invest in its stocks and debt, prising open more of the country's US$430 billion markets to overseas companies and triggering a mild rally Wednesday.

New quotas, to be handed out to institutions approved to invest under the landmark qualified foreign institutional investors (QFII) program, would more than double to US$10 billion from a previous allocation of US$4 billion exhausted in April.

Regulators said in July that the government would expand the quotas, hoping more foreign investors would help stabilize the stock markets mired at multi-year lows.

Hang Seng Bank Ltd., Hong Kong's third-largest lender, said it had become the first to win a new quota, doubling its total allocation to US$100 million.

The benchmark Shanghai Composite Index closed 1.8 percent higher, a moderate gain as the news had been expected.

¡°This QFII expansion is a long-term positive, because more foreign involvement in China's stock markets will bring forth more advanced investment ideas,¡± said Dong Lianghong, a fund manager at Boshi Fund Management Co.

The government is preparing the country's financial sector for a near-full opening to overseas competition by late 2006, in line with commitments made upon joining the World Trade Organization.

Since 2002, regulators have turned on the green light for dozens of joint-venture mutual funds and brokerages, invested by global financial giants from Goldman Sachs to Allianz AG, which are eyeing China's US$1.5 trillion in personal savings and the country's fast economic growth.

QFII also formed a facet of the government's overall campaign to clean up the country's 14-year-old capital markets, to transform them into viable venues for companies to raise money.

Under a policy implemented in 2003, foreigners were granted approval to invest in the main share markets, once the preserve of Chinese investors. Foreigners could previously trade only hard-currency B shares, a tiny market that has seen no new listings since October 2000.

Regulators have granted approval under the QFII scheme to 27 foreign companies, also including Deutsche Bank and HSBC Holdings Plc., to trade yuan-denominated A shares in more than 1,400 firms as well as treasuries and corporate bonds.

With China's shares having underperformed much of the region in recent years and average valuations of 17 times earnings ¡ª versus about 40 in 2001, some foreign investors are beginning to show interest in Chinese stocks. Goldman Sachs, Credit Suisse First Boston and UBS AG have expressed interest in expanding their investments.

(Shenzhen Daily/Agencies)