Investment firms push for RQFII quotas

Shanghai-based Fullgoal Management Co Ltd has established a unit in Hong Kong to provide offshore investors access to the mainland capital market under the Chinese government's renminbi qualified foreign institutional investor (RQFII) scheme, according to an announcement issued by the company Wednesday.

Fullgoal follows China Merchants Fund and Guotai Asset Management Co Ltd as the latest in a string of mainland fund companies moving to develop RQFII operations in Hong Kong, a trend which underscores a rising demand among offshore yuan holders to tap investment opportunities on the mainland, experts told the Global Times.

First introduced in December 2011, China's RQFII program is the only channel allowing institutional investors to bring offshore yuan back into the mainland capital market. During the first six months of the program's existence, the offshore market's reaction to RQFII products was muted, given that yuan holders in Hong Kong could only use the scheme to access a limited number of fixed-income products with yields lower than those being offered by other investment firms in the region, Wang Qunhang, director of Huatai Securities' fund research center, explained to the Global Times.

The demand for RQFII products increased significantly in July, when the scheme was widened to allow Hong Kong investors to take positions in exchange traded funds (ETFs) tracking stock indices on the mainland, said Wang. These ETF products provide investors indirect access to the mainland equity market and thus can potentially deliver much higher returns than fixed-income securities, Wang explained.

In response to the growing appetite among investors in Hong Kong for products tied to mainland stocks, the country has recently begun fast-tracking approvals for RQFII quotas, which has led a large number of mainland fund companies to pursue RQFII activities, Qu Wenqian, a cross-border market analyst from Z-Ben Advisors, told the Global Times.

But while offshore investors may be clamoring for chances to participate in the mainland stock markets, onshore fund companies should think carefully about offering RQFII services as exchanges in Shanghai and Shenzhen hover near three-year lows and show few signs of rebounding, Qu said.

Wang countered this view, saying that while mainland stocks remain depressed, Hong Kong's savvy capital holders typically favor long-term investments rather than quick returns and can be counted on to hold on to their positions until the markets improve.