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E Fund gets $1b for overseas investment

By Li Xiang (China Daily)
Updated: 2009-10-27 08:38

More Chinese funds are lining up for QDII quotas. [China Daily]?

E Fund Management Co, China's fifth-largest mutual fund company by assets, said yesterday that the quota it received from the government to invest in overseas securities indicates that regulators believe the global economy has exited the worst of the financial crisis and will generate business opportunities for domestic fund houses.

The State Administration of Foreign Exchange (SAFE) has approved quotas of $1 billion to E Fund, under the qualified domestic institutional investor (QDII) program after a 17-month halt.

China Merchants Fund also obtained a $500-million QDII quota from SAFE.

"Granting the quota to us at this time shows that the government believes the overall global economy is recovering and it is going to be helpful to us," Ai Liqun, spokeswoman of E Fund, told China Daily over the telephone.

China's decision to resume the issuance of QDII quotas is seen as a strategy to encourage capital outflow in order to ease the pressure of the appreciation of the yuan and hot money inflows. Analysts pointed out the resumption also came as part of China's long-term goal to reform and gradually open its capital market.

"The decision is in line with the goal to loosen controls on capital outflow and to further improve and open China's capital market," said Liu Mingjun, an analyst at Cinda Securities.

E Fund said it was aiming to sell funds focusing on equities in Asia, excluding Japan, but it will not officially launch the product until late November. China Merchants Fund is also planning a similar mutual fund product to invest in global stocks.

Analysts expressed optimism over the performance of the to-be-launched QDII products from the two Chinese fund companies as global stocks continue to see strong gains and the economy starts to recover.

"The global financial market continues to recover and the risks will be much lower if the new QDII products are designed for several markets instead of a single one," Liu said.

China launched the QDII program in 2006 to allow Chinese fund companies to invest in overseas securities and has approved 56 QDII institutions with a total investment quota of $55.95 billion. But SAFE halted the issuance of new quotas last May to shield investors from potential risks overseas.

Analysts said that more domestic mutual funds would be lining up for SAFE's QDII quota approval in the future as the global economy continues to pick up under various stimulus packages and China plans to expand outward investment.