QFII and RQFII’s Asset Allocation in A-shares to Increase, Chief Economist at Bank of China Hong Kong Says

QFII and RQFII’s Asset Allocation in A-shares to Increase, Chief Economist at Bank of China Hong Kong Says

Liao Shumin

Date: Fri, 11/24/2017 - 18:58 / source:Yicai
 QFII and RQFII’s Asset Allocation in A-shares to Increase, Chief Economist at Bank of China Hong Kong Says
QFII and RQFII’s Asset Allocation in A-shares to Increase, Chief Economist at Bank of China Hong Kong Says

(Yicai Global) Nov. 24 -- The China Securities Regulatory Commission (CSRC) will look to further optimize activities related to the QFII (Qualified Foreign Institutional Investors) and other systems in order to further build an international crude oil futures market and to support exchanges and industry organizations actively participating in the construction of One Belt, One Road Initiative projects, Securities Daily cited CSRC assistant chairman Zhang Shenfeng as saying.

Regulators have repeatedly stated this year that the country will further improve the QFII and RQFII (Renminbi Qualified Foreign Institutional Investors) policies. The CSCR committed to gradually easing market access and expanding investment scope in an announcement in June.

With regards to optimizing the QFII and RQFII systems, regulators may also gradually relax qualification requirements for QFII (including the size of assets and operating years), relax restrictions on investment quotas for single investors under the QFII program and on QFII's remittance of capitals in and out of the country. This could include reducing current requirements for funds to be locked for one to three years, says E Zhihuan, chief economist at the Bank of China (Hong Kong) Limited.

Regulators may also implement restrictions on the proportion of shareholdings held for different industries to make it easier for listed companies to attract international strategic investors.

As regulatory quality and efficiency improve, there have also been improvements in the capital market environment with continued downward trends in interbank businesses of financial institutions and the growth of broad money. "The mainland capital market will see more standardized operations in the future under the background of financial risk prevention. At the same time, the entry of foreign capital will also further optimize operation mechanisms in the capital market in the mainland and create a positive feedback effect," he said.

Firstly, the entry of institutional investors such as QFII and RQFI can increase the proportion of institutional investors in the mainland capital market. Currently, investors in the mainland securities market are mainly small- and medium-sized retail investors, with their share of stock turnover now occupying more than 80 percent for many years. The entry of institutional investors such as QFII and RQFI can effectively optimize the investor structure in the mainland market.

Secondly, individual investors are characterized by a lack of rational analysis and obvious herding effects, leading to greater market volatility. Institutional investors, on the other hand, behave in a more rational manner. Therefore, their entry into the market can guide retail investors in value investing and help to maintain a stable and orderly capital market.

Thirdly, the entry of institutional investors can directly promote trading among international investors and further enhance market transaction activity, which, to some extent, can also stimulate enthusiasm among local investors.

Powerful institutional investors such as QFII bring strong operational experience and their entry into mainland capital markets is good for mainland investors as they can become familiar with rules governing international capital operations and accumulate experience in dealing with various risks. It can also increase relations between the mainland and the international capital markets, which is conducive to deepening the opening up of the mainland capital market.

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Keywords: qfii, RQFII, Bank of China (Hong Kong)