BIZCHINA / News
Analysts upbeat over QDII moves
By Hui Ching-hoo (China Daily)
Updated: 2007-05-24 08:33
Analysts expect the widening of the investment scope for the mainland's
qualified domestic institutional investors (QDIIs) will boost Hong Kong's
equity market as long as the mainland regulator continues to widen the
quota of investment.
They forecast that half the amount of the granted quotas of $10 billion
will be used by the end of the year.
On May 11, the China Banking Regulatory Commission (CBRC) announced that
it's extending the spectrum of QDII products to overseas stocks.
The news sparked Hong Kong's Hang Seng Index to soar 511 point last
Monday to 20,979, while the daily turnover hit an all-time high of HK$95
billion. But the rally ran out of steam and the index fell 111 points the
next day.
"QDIIs haven't done a great job in the past as the products were only
allowed to invest in fixed-return tools," said Daniel Chan, DBS Bank
(Hong Kong) senior investment strategist. He attributed the lukewarm
response of QDIIs to the products' low returns.
"As the spectrum of QDII products extend to equities, the average return
could be at least at 8 percent. We expect commercial banks to be more
eager to apply for the new quotas. Overall, how far Hong Kong's equity
market will be driven by QDIIs depends on whether the central government
will further relax the QDII quota," said Chan.
For the mainland, Chan said, more relaxation could help channel excess
liquidity and reduce foreign reserve pressure.
Tai Hui, an economist with Standard Chartered Bank, said QDIIs are
expected to generate little impetus for the Hong Kong market.
"With the frenzy in the equity market, QDIIs look less attractive to woo
mainland investors to divert their money to Hong Kong," he said.
"The Hong Kong market can benefit only if the banking regulator widens
the quota and spectrum of QDIIs, but we're also aware some of the money
might flow to other overseas markets rather than Hong Kong, the US for
example."
A Standard Chartered report stated: "Given the high market capitalization
of the A-share market, the State Administration of Foreign Exchange might
loosen (the curbs on) exodus of capital via QDIIs. Also, the price
discrepancy between A and H shares will lure more domestic money into the
H-share market."
The report forecast that $10 billion of the overall $18.5 billion of the
QDII quota would be used by commercial banks this year.
UBS Investment Research Director Eric Wong pointed out that the new round
of QDII quota expansion would have a positive effect on Hong Kong's
property market.
"As the quota keeps widening, it'll suck more overseas capital into Hong
Kong. With the QDII impetus, more multinationals will set up their
branches in Hong Kong. We expect developers to try increase their land
reserves in anticipation of the influx of foreign capital," he said.
CBRC gave an official go-ahead this month to allow commercial banks with
QDII qualifications to issue wealth management products investible in
overseas stocks.
A bank will be allowed to invest no more than 50 percent of a single
wealth management product in foreign stocks.
However, banks can neither pour more than 5 percent of a wealth
management product into a single stock, nor use their own money in such
investment.
(For more biz stories, please visit Industry Updates)
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