On the heels of Chinese securities and fund management companies being allowed to invest overseas, those eligible for applications for the Qualified Domestic Institutional Investor (QDII) have already moved ahead with the preparation of QDII products, and the first QDII product managed by a fund company is in the offing.

According to Xu Xiaosong, deputy general manger of China Southern Fund Management Co Ltd, their first QDII product, expected to raise US$800 million to US$1 billion, will focus on global funds and H-share investment.

Preparatory issues like product design and staff appointment are almost completed. In addition, the US-based Mellon Financial Corp has signed an agreement with the company to co-develop the QDII product and provide investment counseling. Relevant applications have been submitted to the China Securities Regulatory Commission (CSRC) for approval.

Insiders say that several qualified securities companies are also preparing their QDII products. Details concerning product development and operational modes have already taken shape.

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Compared with previous QDII products initiated by commercial banks, these new products, with more investment expertise from securities and funds management companies, may emphasize on stock investment. Although the QDII products won't attract as much money as funds investing in A-shares, they'll be more popular than previous investment products, according to the insiders.

However, commercial banks aren't lagging behind in the race. Recent QDII products from some banks saw a notable percentage growth in stock investment.

For example, the Oriental Pearl, a QDII product initiated by the Industrial and Commercial Bank of China this month, plans to invest 50 percent of the funds into H-shares of State-owned enterprises, red-chips and newly offered stocks, touching the upper limit of stock investment percentage for a QDII product.

In order to avoid the 50-percent limit for stock investment, many QDII managers turn to invest in overseas mutual funds, rather than directly in stocks. Choosing these QDII products almost equals buying a portfolio of overseas funds.

Inspired by the bullish A-share market, many investors also hold high expectations on the returns of QDII products. But some analysts believe that as long as the renminbi keeps appreciating, the expected returns of QDII products can hardly surpass returns from investment in the A-share market. They say the significance of QDII products is that they provide investors with a new channel to diversify risks from the current A-share market.

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