Hong Kong's Securities and Futures Commission has welcomed last week's decision by the China Banking Regulatory Commission to widen the scope of investments which mainland commercial banks are allowed to offer their qualified clients.
Funds run by mainland commercial banks are now allowed to invest in a wider range of asset classes, including equities and equity funds authorised by a supervisory authority with whom the CBRC has a Memorandum of Understanding (MOU) - which means Hong Kong. Where an overseas intermediary is appointed as investment manager, it must also be regulated by a supervisory authority who has an MOU with the CBRC. The CBRC signed an MOU with the SFC on 10 April 2007.
Mr Eddy Fong, SFC Chairman, said: “This announcement will no doubt result in a win-win scenario for both the Mainland and Hong Kong. Mainland investors will be able to enjoy a wider choice of investment products available in Hong Kong, and at the same time benefiting Hong Kong’s existing asset management industry. We will continue to work closely with the Mainland authorities to facilitate the development of the wealth management business of commercial banks in the Mainland, and to strengthen Hong Kong’s role as a platform for Mainland investors to invest in overseas markets.”
Previously, funds offered to qualified domestic institutional investors (QDII) were limited to global fixed-income products. Equity investments will be limited to 50% of NAV of each fund, and the minimum investment by each investor in equity QD funds will be RMB300,000 ($39,000).
Under the existing limitations, and with booming local stock markets, the QDII program has largely been ignored by investors. The Chinese authorities have loosened the rules partly in order to try to cool over-heated domestic equity markets, and some banks may hold back from issuing funds out of a fear that this is just a short-term measure which could just as quickly be rolled back if domestic conditions improve.
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