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QFII assets fall amid uncertain market

By Jin Jing and Hui Ching-hoo (China Daily)
Updated: 2007-06-13 08:48

A large redemption by investors in an uncertain market in May depressed the combined assets of all QFII (qualified foreign institutional investors) funds for the first time in two years.

The gross value of QFII funds shrank to $5.76 billion in May, down $900 million, or 12.8 percent, from a month before, according to Lipper, which tracks the performance of mutual funds.

"The market needs to cool down after the large correction," said Zhou Liang, China research manager of Lipper. "Some QFII investors decided to book profit by redeeming their holding during the bull run in April and early May."

Related readings:  China may triple QFII quota to $30 billion - report  QFIIs gains share-holding in Q1 Second batch of QFII about US$6 billion Find more in Markets Watch

The stock market slid as much as 6.5 percent the day after the government raised the stamp tax at the end of May.

"The drop reflects that institutional investors, including fund managers, unload stocks after realizing profit. Given the overshot price-equity ratio, fund managers might want to avoid the A-share market until the market cools down," said Daniel Chan, DBS Bank HK senior investment strategist.

"But we remain positive that more foreign funds will keep on flowing into the mainland via QFII," said Chan.

"The users of QFII take a cautious and rational stance because most of them are institutional investors," said Ronald Wan, managing director and head of investment of BoCom International.

"Some institutional investors see the Shanghai Composite Index going down to 3,500 by the end of the year, so they might downsize their holding till the index hits that level."

Zhou of Lipper said: "The stock market is also expected to encounter much resistance, and investors should be more cautious."

The average return of QFIIs was 11.29 percent in May, higher than most domestic mutual funds, according to Lipper.

ABN AMRO China A-share Fund topped all QFII funds in May with its 14.86 percent return. Hang Seng China A-share Focus clocked up a 10.88 percent return in May, while Morgan Stanley China A-share Fund Inc showed a 11.41 percent return.

The government has approved over 50 QFIIs and is expected to triple the quota of QFIIs from the current $10 billion.