China likely to see more index inclusion upon investment quota removal: UBS
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E-mail Xinhua, September 13, 2019
China's decision to remove the quotas with two inward investment schemes has opened the door to more index inclusion or increased inclusion factors, said a strategist with UBS Global Wealth Management.
China's removal of investment quotas on Qualified Foreign Institutional Investors (QFII) and RMB Qualified Foreign Institutional Investors (RQFII) is an important step in opening up its onshore capital market and provide a sentiment boost, said Lucy Liu, a strategist with UBS Global Wealth Management's Chief Investment Office on Wednesday.
Over the long run, policy tweaks on QFII and RQFII will likely strengthen China's negotiating hand for further A-share inclusion in the MSCI and FTSE emerging market index baskets, said a report by UBS Global Wealth Management on Wednesday.
Market impacts of the liberalization move is likely limited in the near term as existing quota is largely unused, Liu said.
The latest policy change increased the flexibility of foreign investors by getting rid of quota requirement and expanding investment scope to the New Third Board, bond repo, private funds and derivatives, added Liu.
Increased foreign inflows should serve to institutionalize China's equity market over time and lead to lower volatility and more focus on fundamentals. The correlation between Chinese onshore assets and global capital market may strengthen on increased foreign participation, though it may take time, according to Liu.
UBS expects foreign investors will continue to prefer the Hong Kong-based Stock Connect program thanks to its lower administrative cost and convenience.
China's forex regulator, the State Administration of Foreign Exchange (SAFE), doubled the quota of QFII to 300 billion U.S. dollars in January in a bid to meet demand of overseas investors.
SAFE on Tuesday announced it would abolish the investment quota restrictions for QFII and RQFII to boost financial reforms and opening up. Foreign institutional investors with corresponding qualifications will only need to go through the registration procedure, so as to remit funds independently to make securities investment.
Since the implementation of QFII system in 2002 and RQFII system in 2011, more than 400 institutional investors from 31 countries and regions have invested in China's financial market in this way, according to the SAFE.
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