Chinese investors broaden horizons

An investment instrument rolled out in 2006 that facilitates overseas allocations of Chinese investors has been gaining in popularity of late.

Market mavens attributed its traction to recent stellar market performance following China's decision to expand its financial borders wider.

Publicly offered funds focusing on overseas investment via the Qualified Domestic Institutional Investors, or QDII, scheme, which provides financial institutions with quotas for outbound investment, have bucked a broad decline in China's fund market in the past quarter.

More than 300 open-ended QDII funds posted a 2.84 percent rise in net value on average in the first three months of the year, with nearly two-thirds of them recording a growth in net value. In the same period, however, the majority of nearly 2,000 publicly offered open-ended funds focusing on domestic stocks suffered a decline, according to market tracker Wind Info.

The eye-catching market performance of QDII funds coincided with a jump in the issuance of QDII funds. The first quarter of the year saw the establishment of five QDII funds that raised 15.97 billion yuan ($2.4 billion) in all, substantially higher than the 3.6 billion yuan raised in the same period last year, according to Wind Info.

To be sure, QDII funds now account for a minor share in China's overall fund market. But they are nevertheless expected to attract more investors as the synchronized global economic recovery has boosted expectations of a return of overseas assets and catalyzed a rally in international prices of oil and other commodities, experts said.

Wang Haoyu, managing director of Beijing-based CreditEase Wealth Management, said the issuance of QDII funds is expected to gradually gather pace as Chinese residents' demand for overseas allocations rises amid rapidly growing family wealth and rising awareness of the importance of diversified allocations.

"Financial markets in developed economies like Europe and the United States are highly mature, while those in many emerging market economies have strong growth prospects, both highly complementary to Chinese assets," Wang said.

There is huge room for Chinese residents to add exposure to overseas assets as researchers have estimated that the overseas allocations of Chinese residents currently account for about 5 to 10 percent of the country's GDP, far below the about 60 percent on average in developed economies, he said.

Another key factor that will popularize QDII funds will be the country's stepped-up efforts to open its financial borders wider, Wang said.

China has been advancing a regular approval and issue of QDII quotas to meet the growing demand in offshore asset allocation.

The approved quotas totaled $134.57 billion by the end of March, up from $125.72 billion as of Jan 13, according to the State Administration of Foreign Exchange.

The SAFE said in January it has taken steady and orderly opening of the country's capital account with a focus on two-way opening of the financial market as one of its key regulatory tasks for this year.

Marina Lui, UBS' group managing director and head of China wealth management, said the Swiss wealth management giant is "keen to proactively participate" in the opportunities brought by the QDII quota expansion.

Chinese residents' exposure to the global market is expected to increase amid such market opening measures, Lui said, a process that will help Chinese investors diversify allocations and mitigate risks amid market volatility.