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QDII funds underperform benchmarks last year
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China's four stock-oriented qualified domestic institutional investor (QDII) funds have all reported big losses last year, and fund management companies blamed the failing performance on the US subprime crisis that caused volatility in the world market, Monday's China Securities Journal reported.

Net value of the four QDII products - JP Morgan Fund QDII, Harvest Overseas Fund, Huaxia Global Selected Stock Fund and Southern Global Enhanced Balanced Fund - shrank by 6.3 percent to 12.1 percent of its initial value by the end of last year, according to their 2007 annual reports.

Southern Global made the smallest loss in net value while Harvest Overseas suffered most. Reports in December said Southern Global suffered slightest slump in net value as it positioned more in funds than in stocks.

In the meantime, the four products also posted negative growth over the earlier-fixed benchmark growth rate, which serves as a major reference for investors to judge the performance of a fund, the biggest negative growth rate, at 10.91 percent, was Harvest Overseas Fund.

By March 22, all four stock-oriented QDII funds saw their net value fall below one yuan (14.3 US cents), the value set for fund subscriptions, with Southern Global at 0.765 yuan, Huaxia Global at 0.713 yuan, Harvest Overseas at 0.613 yuan and JP Morgan at 0.632 yuan.

The US subprime crisis should be blamed, the four fund management companies said in their annual reports. Huaxia Global said the world stock market, emerging markets segment in particular, was badly hit by a slowdown in the US economy as well as the world economy after the subprime crises surfaced in the second half of last year in the United States.

Southern Global said the negative earnings were due to the adjustment of the world market under the influence of the subprime risks.

However, Harvest Overseas cited as well the appreciation of the Chinese currency against the dollar during the period for its huge losses.

These four QDII funds, Southern Global being the first approved in September last year to invest 100 percent of its assets in global stock markets instead of low-risk, low-return bond and currency markets only, currently invested heavily in the Hong Kong market, which was vulnerable to difficult conditions of the US market.

However, the pace of growth of QDII funds in China was not hampered. Apart from the fifth QDII fund already launched in January, namely ICBC Credit Suisse China Chance Global Allocation Fund, several other fund management companies have recently gained QDII status and are preparing to launch their QDII products.

They include Huabao Industrial Fund Management Ltd, Fortis Haitong Investment Management Co Ltd, China Universal Asset Management Co Ltd and E-fund Management Co Ltd.

The four losing QDII funds were widely disagreed on the market prospects for 2008, but they were all optimistic about emerging markets like China, India and Indonesia, according to the newspaper.

Huaxia Global said the rate cuts of the US Federal Reserve may help ease the loan burden of house buyers, but it would do little to spur corporate investment or individual consumption.

Southern Global, however, believed there would be good opportunities for the US economy to make a soft landing this year, and they expected the profits of companies worldwide would continue to rise in 2008 on the back of a recovering US economy.

Many of China's QDII funds and products, including bank-backed funds, were pushed into a loss as the US credit crisis began to unfold and spread.

China Minsheng Banking Corp said on March 19 that it would liquidate a QDII fund and repay investors, as required if the fund's assets fell below 50 percent of their initial value. This had raised concern about a wider failure of QDII products.

China's banking supervisor on Friday had asked banks to fully evaluate investors' risk tolerance shortly after the liquidation announcement from Minsheng.

(Xinhua News Agency April 1, 2008)

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