QFIIs may get crack at index futures market

Futures Exchange reported to be sounding out interest from leading foreign fund managers

The China Financial Futures Exchange is considering a proposal to allow foreign financial institutions that manage the largest Qualified Foreign Institutional Investor funds to trade in the stock index futures market, according to a Securities Times report on Thursday.

Although no schedule has been set for their admittance to the market, the exchange has been holding talks with leading foreign fund managers to sound out their interest in the futures market, the report said.

The report cited a source at the future exchange as saying foreign institutions could help boost the liquidity of the futures market and strengthen Shanghai's position as an international financial center.

China expanded its QFII program this year by admitting more foreign investors and lifting the investment limits placed on certain investors. The goal was to bring more vitality to the A-share market, on which yuan-denominated shares are traded.

The QFII program, the main means foreign investors to enter China's stock and bond markets, has been opening China's capital market to provide more opportunities to China's fund industry.

In November alone, QFIIs opened 12 A-share market accounts in Shanghai and Shenzhen, bringing the total number to 104 so far in 2012, according to statistics from China Securities Depository and Clearing Corp Ltd.

Unlike domestic investors, QFIIs may view the A-share market's current slump as an opportunity to hunt bargains, according to Pu Yonghao, Hong Kong-based regional chief investment officer for Asia Pacific at UBS Wealth Management.

Chinese authorities have been working to make it easier for QFIIs to invest in the stock market in recent years.

In April, regulators announced they were increasing the limit placed on QFII investments from $30 billion to $80 billion, and speeding up the approvals of investment quotas.

In October, as many as $2.8 billion worth of quotas were approved, more than 10 times the monthly average for the past three years.

On Dec 14, China's foreign exchange regulator announced it was removing the QFII program's former $1 billion limit on purchases of Chinese assets by foreign sovereign wealth funds, central banks and monetary authorities.

The regulator did not say what the new investment maximum will be for the affected foreign sovereign wealth funds, central banks and monetary authorities.

The A-share market has been battered in 2012, and is now down 60 percent from its peak in November 2007.

Although the capital from approved QFIIs makes up less than 3 percent of the total capital in China's stock market, the program's rapid expansion has been a boon for the mutual fund industry.

The increasing amount of QFII capital in China's stock market will add liquidity to the A-share market and give investors more confidence in China's fund industry, said Zhang Qi, analyst with Haitong Securities Co Ltd.