China broadens access to HK stock link for mainland funds

BEIJING – China has expanded the number of local fund management companies eligible to buy Hong Kong stocks through the city’s exchange link with Shanghai as authorities seek to boost a programme that has attracted few mainland investors.

Domestic money managers no longer need to be part of the Qualified Domestic Institutional Investor (QDII) programme to invest in Hong Kong shares via the connect, the China Securities Regulatory Commission (CSRC) said in a statement today (March 27). Firms can set up new funds to use the link, the CSRC said.

Mainland participation in the programme has been tepid so far, with Chinese investors purchasing just 12 per cent of the available quota. The four-month-old bourse link marked one of China’s biggest steps to open up its capital account and broaden investment options for the world’s most populous nation.

Mainland funds “are now provided with direct access” to Hong Kong shares through the connect, said Mr Chris Powers, a Shanghai-based strategist at research firm Z-Ben Advisors.

“It’s a good step in a right direction, but in terms of a large amount of fund flows, I don’t really see that in the immediate term,” he said.

The move comes a day after China raised an investment quota for a foreign fund management company to a level that exceeded a previously announced cap, signalling a relaxation that would broaden access to its capital markets.

Fidelity Investments Management (Hong Kong) had a US$1.2 billion (S$1.7 billion) quota under the Qualified Foreign Institutional Investor (QFII) programme as of March 26, according to a table posted on the State Administration of Foreign Exchange’s website. The regulator set a US$1 billion limit for QFII allocations in 2009 and Mr Guo Song, head of its capital account management department, said Thursday that an increase in the ceiling was being considered.

Stock purchases by mainland investors through the link so far are concentrated in Chinese brokerages, banks and state-backed companies whose shares trade in the former British colony. Hanergy Thin Film Power Group, which gets more than 99 per cent of its sales from China, was the most-purchased stock through the connect in Hong Kong during February, according to the latest monthly exchange data.

The MSCI Hong Kong Index, which includes local companies such as Sun Hung Kai Properties and Power Assets Holdings, rose just 1.2 per cent from late November through Thursday. It is still about as expensive as the Shanghai Composite Index, priced at 15 times estimated earnings compared with 14.6 for the mainland benchmark. BLOOMBERG