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No-fuss debut for QFII scheme The lukewarm response of the domestic stock market to China's "historic first step" of opening up A-shares to foreign firms is unexpected but nonetheless healthy.
UBS Warburg and Nomura Securities became the first two overseas companies to be awarded qualified foreign institutional investor (QFII) licences on Monday. The green light on QFII will help China's fledgling securities market because new overseas investors will bring not only considerable capital but also different investment strategies stressing long-term returns. But the market has, surprisingly, not been galvanized by the issuing of the new licences. Millions of domestic shareholders have anticipated the debut of QFII ever since the local stock market turned bearish in mid-2001, hoping that rich foreign investors would trigger another boom. Yet the arrival of QFII has barely caused a ripple in the market. Some analysts attributed this unexpected market response to the lingering shadow of SARS. It is true that the impact of the epidemic is difficult to calculate. But that ignores the underlying message the approval of QFII sends to the market. The introduction of QFII is, above all, an effort to accelerate standardized and transparent development of the home securities market. This market has experienced rapid growth in the past decade to develop into one of the country's most important financial markets. But the stock market has also abounded with speculative investment and corporate scandals due to lack of value-oriented investors and aggressive supervision over listed companies. QFII is expected to not only benefit domestic investors with their long-term investment strategies but also increase the pressure on listed companies to be more transparent and to standardize management. The entry of QFII into the home securities market will fundamentally change the behaviour of both domestic investors and listed companies, making them more rational and accountable. The calm market response to QFII is therefore welcome because behind it is a sense that the new investment regime QFII represents is welcome. |
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