CKF Fund Management Weekly: QFII still the cornerstone of A-share Market

The introduction of the "qualified foreign investment investor" (QFII) scheme gives the foreign investors an opportunity to tap on the equity market in China, and QFII fund have been positioned as value investment in China as they usually hold major blue chips for longer periods, rather than selling them frequently.

Recently, officials with the regulatory bodies revealed China will further increase the QFII quota from the current US$9.995 billion since the Chinese authorities hope to attract foreign institutional investors to help set up healthy capital market and enhance the corporate governance of listed Chinese companies.

Find out how the new QFII rules differ from the old ones with regard to the qualifying criteria, the number of RMB accounts QFIIs are allowed to open in China, remittance and repatriation as well as the investment restrictions and our analysis on reasons of the lower-than-expected return of QFII fund compared with the mutual funds in China in this report.

Highlights of the report:

- The most recent amendment of QFII rules was made in Sept 2006, the New Rule superseded the original rule that had been in place since 2002. While relaxing some entry requirement, QFII rules remain target of attracting long-term capital, and meanwhile to enhance regulation of investments in Mainland China.

- Statistics from the first 49 show that the smallest quota among them is $50 million, far more than the $5 million left over for the final three. Although CSRC has not issued any new license since November 2006, there is an urge to further increase the QFII quota.

- With rich investment experience and independent analytical skill, QFII had facilitated a transformation in Chinese investors' sophistication, improved risk management, strengthened the global clout of Chinese capital markets and helped optimize corporate governance.