China approves USD 300 bln quota for foreign investors, as much as USD 1.2 trln to enter China's A-shares market

The State Administration of Foreign Exchange (SAFE) of China, today, further expanded the investments quota of Qualified Foreign Institutional Investors (QFII) to USD 300 billion from USD 150 billion. As of to date there are about 300 such qualified foreign institutional investors. The increased quota is in tandem with those recent increases for foreign funds flows that invest via Hong Kong Stock Exchange (HKEx) into Shanghai and Shenzhen Stock Exchange.

Since April 2018, the Chinese government and relevant ministries and regulatory bodies have approved a slew of schemes and new rules to further open its USD 48 trillion financial markets.

After Oct 2018 foreign residents were allowed to buy into A-shares. Since then, the rapid liberalizations include:expansion of foreign investment channelsallowing majority shareholding of foreign companies in China’s securities businessencouraging direct foreign investments into A-shares via M&A by CSRCincreasing QFII’s quotaOn financial derivatives, trading of rubber and oil futures are tied to Renminbi, and foreign participants are encouraged to trade in these markets.

Outside China increasing component stocks of A-shares are joining the MSCI and Russell’s index. There are also increasing number of foreign mutual funds introducing China’s theme funds. Even the world’s largest hedge funds are piling in Chinese market to raise funds to invest both local and foreign markets.

In contrast to many foreign critics and media reporting of China’s RMB depreciation, the Chinese currency stayed resilient throughout 2018, and had not tipped over a dollar to RMB 7.00 level. Its currency stability assures foreign investors the positive returns earned in China are not impacted by Renminbi depreciation.

With Sino-U.S. trade conflict coming to an amicable settlement the Chinese stocks have potential to realign with fairer valuation and see prices trending upward for a prosperous 2019. The equity markets will also be driven by further and bold market liberalization.