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Banks' QDII funds suffer overseas losses

By Ding Qi (chinadaily.com.cn)
Updated: 2008-07-24 15:31

Affected by the depressed overseas market amid the US sub-prime mortgage crisis, domestic wealth management products under the qualified domestic institutional investor (QDII) scheme have suffered heavy losses.

Statistics on Thursday's Shanghai Securities News show that as of July 17, 90 percent of QDII funds launched by commercial banks have broken their one-yuan face value.

According to the paper, among 190 bank QDII products available in the market, only 20 received positive returns since establishment, while 170 funds went beneath face value.

Five out of 37 QDII funds from Chinese banks gained. But the number of funds with more than 20 percent of loss reached 17. The situation is no better for foreign lenders, as the net worth of 138 out of 153 funds from foreign banks were below one yuan.

QDII is an investment scheme through which domestic institutional investors authorized by the government can invest in the overseas capital markets under the nation's foreign exchange control system. The first batch of QDII funds were launched in September 2007.

Despite the overall weak performance of banks' QDII funds, some still reaped notable gains thanks to their unique investment focus. For instance, a fund from Agricultural Bank of China that targeted overseas farm produce markets increased a surprising 23.89 percent in annual profit. The returns were 96 percentage points higher than the poorest QDII product performance.

In contrast with the bearish world stock markets, commodity futures soared in the past year. Agricultural products like corn and soybean in the Chicago Board of Trade (CBOT), the world's largest derivatives trading venue, doubled their futures prices amid yield uncertainty, weakening dollar and speculation during the past months.

Analysts noted that investment targets have become the crucial factor in QDII funds' achievement. Meanwhile, investment timing also matters. Generally speaking, recently operating funds performed better than old ones, which have suffered the darkest days of overseas stock markets.

According to the paper's statistics, two QDII products that were operational for less than three months posted an annualized profit margin of 31.68 percent. In contrast, those running for three to six months lost 8.84 percent in annualized measure. Yet for 159 funds that launched six to one year ago, their average grade list was a poorer -29.92 percent.