(Xinhua)
Updated: 2007-07-31 11:31

Two Chinese fund management firms are planning to focus their overseas investments on stock markets, after domestic fund management firms were allowed by China's securities watchdog earlier this month to follow commercial banks into overseas securities.

The move would teach domestic fund management firms how to invest globally and help alleviate the pressure of soaring foreign exchange reserves on China, said analysts.

China Southern Fund Management Co Ltd, approved last week as a qualified domestic institutional investor (QDII), will select 48 countries and regions for its portfolio, with initial investments targeting shares listed in Hong Kong and global funds.

Related readings:  Southern Fund wins nod to invest abroad  Banks use only 26% of QDII quota in 1st half  Insurers to be allowed to increase overseas investment

Southern Fund, based in the southern city of Shenzhen, expected to launch its first QDII product in one or two months with a quota of US$1 billion, said company general manager Gao Liangyu.

China Asset Management Co Ltd (China AMC) would also have its first QDII product focus on overseas stock markets, including developed markets in the United States, Europe, Japan and Hong Kong and in some emerging markets, the Shanghai Securities News reported on Monday.

A maximum of 30 percent of the Beijing-based firm's quota would be channeled into the stock market in Hong Kong, while a smaller part would fund overseas bond purchases.

The investment strategy of the two firms will be different from that of the commercial banks, which mainly invest in international money markets, bond markets or a single stock market.

As share values in China's markets continue to rise, "diversified investments around the globe are the only way to reduce risks", said Xie Weihong, director of the international department of Southern Fund.

Global investments would also enable domestic investors to benefit from world economic growth, said the report, citing figures from Morgan Stanley, showing the A-share market yielded an annual average rate of 45 percent over the past three years, while returns were even higher in the markets in Egypt, Argentina and Indonesia.

Investing in countries whose currencies were expected to appreciate against the yuan would help investors evade exchange losses, it added.

Southern Fund has signed an agreement with US-based Mellon Financial Corp., a US-based global financial services company, to co-develop the first QDII product, while China AMC has chose the US-based T. Rowe Price as its consultant for overseas investment.

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