Hedge Fund Intelligence Hedge Fund Intelligence - China | Page 28

CHINA 2013 ASSET MANAGEMENT

ASSET MANAGEMENT CHINA 2013

BUILDING THE ASSET MANAGEMENT INDUSTRY
Perhaps the most striking manifestation of the accelerating liberalisation process, however, has been the increase in quotas available to foreign investors through the Qualified Foreign Institutional Investor (QFII) and – more recently – the Renminbi Qualified Foreign Institutional Investor (RQFII) programmes. Originally launched in 2002, the QFII scheme was a key landmark in the opening of the Chinese capital market, allowing approved foreign investors to buy and sell locally-listed A shares. The process began cautiously, with the quota increasing from a token $4 billion to $10 billion in 2005, to $30 billion in 2007 and to $80 billion in April 2012. More recently, liberalisation of the QFII scheme has been turbo-charged relative to its early days. In December 2012 the $1 billion quota limit for sovereign wealth funds was lifted, while in July 2013 the overall QFII quota was almost doubled to $150 billion. The RQFII initiative, meanwhile, was launched in December 2011 and allows Hong Kong subsidiaries of fund management firms to channel RMB
28 Special Report September 2013
© HedgeFund Intelligence

funds raised in Hong Kong into domestic securities. The RQFII quota has also been increased recently, almost quadrupling to RMB270 billion in November 2012, while in March 2013 its scope was extended to cover London, Singapore and Taiwan. QFII and RQFII quotas are likely to rise further in the coming years, with CSRC chairman Guo Shuqing recently quoted as saying he expects them to increase to 10 times the current limit. While inward flows into equities are one likely trend, another that some expect to see in the Chinese domestic market is a loosening of investors’ traditional preference for equities over other asset classes. “It is still predominantly an equity-based culture, but as the fixed income market is growing, the derivatives market develops apace and has the potential to provide many opportunities for hedge fund managers,” says Lunn at UBS. “After all, China is seeking to build a deep and mature asset management industry encompassing all asset classes and investment strategies.” Already, domestic investors appear to be developing a taste for fixed income at the expense of equities, which is perhaps unsurprising in light of the feeble performance of the A share market. According to a recent Boston Consulting Group (BCG) analysis, bonds accounted for 7% of high-net-worth individuals’ assets at the end of 2012, compared with just 3% in 2011. Over the same period, the share of equities dipped from 30% to 21%, while holdings of cash and deposits fell from 18% to 16%.

KEY FACTS High-net-worth individuals’ assets

2011 2012
© HedgeFund Intelligence

Bonds

3% 30% 18% 7% 21% 16%

Equities

Cash

Source: Boston Consulting Group
September 2013 Special Report 29