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QFIIs hike investment in stocks

By Zhou Yan (China Daily)
Updated: 2009-08-14 11:34

The mainland stock market rebound has prompted QFIIs to buy more A shares.[China Daily]

The booming Chinese stock market and the quick recovery of the domestic economy have propelled qualified foreign institutional investors (QFII) to book overweight positions in A shares.

Overseas institutions held 338 million shares in 60 listed firms worth 36.6 billion yuan ($5.36 billion) at the end of the first half, according to figures from financial information provider Wind Info.

Belgian Fortis Bank SA/NV bought 9.93 million shares in Jiangsu-based engine manufacturer Jianghuai Engine Co in the second quarter, boosting its total holdings in the company to 22.15 million or 2.62 percent of the total tradable shares.

French firm La Compagnie Financiere Edmond de Rothschild Banque boosted its shareholdings in Shanghai Yimin Commercial Co to around 14 million in the first half, accounting for 1.91 percent of Yimin's total tradable shares.

"The increased capital injection indicates the pick-up in foreign institutions' confidence in China's economy," said Zhang Gang, analyst, Southwest Securities.

Zhang, however, feels that the buying spree cannot be sustained, as most of the QFIIs missed out on the best opportunity to acquire shares in early 2009 due to their cash strains.

On Monday, the China Securities Regulatory Commission approved Korea Investment Trust Management Co to function as a QFII, expanding the total number of such investors to 87.

So far, the QFII scheme is the only available route for foreign investors to invest in China's securities market, with the total QFII quota at $10.8 billion.

During the first US-China Strategic and Economic Dialogue held in July, China's top officials have mooted the idea of increasing the quota to $30 billion, but didn't mention the timeline.

Figures from US-based fund data provider EPRF Global showed that some $3.6 billion was injected into the Chinese equities market in the second quarter of this year, a record high since the QFII scheme was launched in 2002.

Related readings:  Newest QFII licenses named  QFII investments set to soar  QFII required to pay taxes on dividends in China  China grants QFII license to UOB Asset Management

The persistent rallies in the domestic stock markets and the resultant surge in the market indexes have also spurred the return of funds managed by QFIIs.

Fund research firm Lipper said in a recent report that the average return of such funds rose 62.8 percent in the first half, outperforming the domestic stock-investment funds' 50.7 percent.

In June, the average return of 11 major funds under the QFII scheme was 12.45 percent, almost equal to the growth of the leading gauge of 12.4 percent during the same period.

"Unlike domestic fund mangers who prefer property developers and banks, QFIIs tends to invest in pharmaceutical, mechanical, and transportation sectors," said Hong Feng, analyst, Founder Securities.

Hong added that foreign institutional investors usually inject more capital into A shares once the stock market moves into a growth trajectory.

"Companies with reasonable valuation and sound fundamentals are generally favored by QFIIs," said Zhang Xiang, analyst, Guodu Securities.