Although China has shown signs of an economic slowdown, foreign institutional investors are still betting on its cheap equity market with potential for big returns.
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Qualified Foreign Institutional Investors (QFIIs) opened 45 new A-share accounts in China last December, a monthly record for 2013, the China Security Depository and Clearing Co.,Ltd. said in January.
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This marked the 24th consecutive month in which QFIIs have opened accounts in China'sA-share markets and brings the total number of accounts to 612.
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Foreign investors have to be licensed as QFII or Renminbi QFII, two schemes created in2002 and 2011 respectively, allowing qualified investors to trade a limited quota in China'slargely isolated capital market.
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The State Administration of Foreign Exchange, China's foreign exchange regulator, granted 51.4b USD of investment quotas to 235 QFIIs, and 167.8 billion yuan to 57RQFIIs as of Jan. 27, 2014.
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"Many Asian institutional investors are planning to buy our RQFII exchange-traded fund,although the issuance time has not been determined yet," said Ding Chen, CEO of HK-based CSOP Asset Management, the largest RQFII in terms of quota.
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Overseas investors, especially those from India, Europe and the Middle East, are eager tobuy RQFII products, said an anonymous senior manager of another HK-based investmentfirm that is about to issue such products. "They believe that China's capital market is partly undervalued," said the manager.
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The Shanghai Composite Index, the benchmark equity index, suffered one of the world'sbiggest falls last year, with an annual decline of 6.75 percent. Some stocks tumbled heavily.
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But Chinese shares rebounded on Friday, the first trading day in the lunar new year, withthe Shanghai Composite Index gaining 0.56 percent, and the Shenzhen Component Indexclimbing 0.58 percent.
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Sentiment among firms is recovering. Nearly 60 percent of 1,734 listed enterprises that have released their preliminary annualreports are optimistic about how they performed last year, with 398 firms estimating thattheir profits surged by over 100 percent.
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China's 2013 GDP growth of 7.7 percent was among the strongest worldwide, despiteexpansion in the country's economy slowing. In addition, China aims to ease the access for foreign investors to invest in its capitalmarket.
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Administrative approval procedures for QFII qualification and quota shall be eliminated"when conditions are ripe," said Zhou Xiaochuan, China's central bank governor, whenattending a financial forum in November.
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Marc Desmidt, head of alpha strategies for Asia Pacific at BlackRock Inc., said China islikely to attract more overseas capital to its A-share market, as the country is steadilyopening up its capital market to investors worldwide.
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Although China has shown signs of an economic slowdown, foreign institutional investors are still betting on its cheap equity market with potential for big returns.
