Canadian funds are looking to up the ante in China's capital markets.  Photo: tourisme-montreal

Translated by Andrew Vanburen from a Chinese-language piece in China Securities Journal

WHAT DO market regulators do to encourage more money to flow into a sputtering capital market?

Other than hoping for easing credit moves from the central bank, they can also take measures to increase participation of fund activity in the stock market in hopes of lifting PRC-listed shares out of their current lull, now sitting at levels nearly 20% lower than a year earlier.

And that is exactly what major overseas funds from Norway, Canada and the like are betting on as they push to allow raises in their allowable investment quotas in PRC-listed A-shares.

Norway’s Central Bank, Abu Dhabi’s Investment Bureau, Canada’s annuity plan and other parties are representing foreign investments funds via Mainland China’s Qualified Foreign Institutional Investors (QFII) program in recently lobbying the PRC’s foreign exchange watchdog – the State Administration of Foreign Exchange (SAFE) – to crack open the door a bit wider to overseas participation in China’s capital markets.

The foreign suitors argue that the current investment quotas on QFII funds are insufficient to meet growing global interest and demand, and have applied to widen the amount they are allowed to inject into PRC-listed equities.

UBS currently has the top QFII quota in China. Photo: swissinfo

A source familiar with the proceedings said that the number of participants as well as the overall investment quota allowed under the QFII plan is currently under review as per the content of the application from the foreign parties.

Additionally, it was quite likely that the QFII current ceiling of one billion usd per party would likely be adjusted upward.

Foreign media reports also reported this week that Beijing may establish new avenues for foreign pension funds to tap into the country’s stock markets in Shanghai and Shenzhen, with the newly proposed vehicles to operate independently from the current QFII scheme.

Over the past few years, China’s GDP has been likened to the “Eighth Wonder of the World,” with the country’s economic output catapulting past several western democracies and finally Japan to now become the globe’s second biggest net producer of goods and services.

“This has naturally elicited very strong interest from foreign investors and funds in our country’s capital markets,” the source was cited as saying.

If the quota is raised, this would put pressure on the current high-stakes investors to possibly push for higher participation.

UBS is currently atop the list, with a QFII investment quota of 790 million usd, while Norway's Central Bank is close behind at 700 million usd.

Most QFII participants are in the neighborhood of around 100 million usd.

See also:

BUFFETT Says China May Already Have Its Coke

HSBC: ‘Bullish’ On China Shares In 2012; Prefers ICBC, CCB, CITIC

NEW KID ON BLOCK: 21 A-Shares In Red; 4 In Hot Water

KINGS OF THE HILL: 12 Banks Produce Over Half Of All Listcos’ Profit

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