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Over the past months, no huge returns predicted by many have been witnessed from the recent market rally for foreign qualifiers like HSBC. Although it has been predicted that the QFII scheme will bring long term gains there are worries that the slow pace in instigating the scheme might sour foreign investors taste in the China growth story, but they remain optimistic for handsome returns down the track.
The current situation is that the QFIIs are not gaining as much returns as expected. He Jun is a senior market analyst from Huaxia Bank:
"The QFIIs have made some money since they were allowed to invest in China's A share market. But generally speaking the benefits are rather limited. The overall index of QFIIs is weaker than the stock exchange at large. QFIIs are also weaker than funds by a large margin."
Meanwhile, an obvious slowdown has been noticed in the scheme since Merrill Lynch has become the first QFII winning approval in five months and a previous QFII Standard Charter is still awaiting an exact investment quota from China's foreign-exchange authorities.
What has caused the slowdown? Industry experts earlier warned that the investment market's stellar performance this year is unlikely to continue. The stock market appears to be losing momentum, and the government will no doubt issue stricter regulations. Once China's market climate changes, foreign early birds may have a difficult time in adapting. China has reinforced its control over capital influx due to concerns over the inflow of speculative hot money, which has affected the approval of QFII.
Some QFIIs admit that their proceeds from the Chinese stock market haven't met with their expectations. But they also acknowledge that this won't scale down their confidence in China's share markets. Liang Hongbin is with the Hong Kong and Shanghai Banking Corporation Limited:
"The overall market returns of the A share market in China was lower than that of neighboring countries over the past year. The consideration of investment is mainly from a long term perspective. As for the macro economic control, we believe it is a periodical policy adjustment and the investment trend and quantity in China is not expected to change because of that."
Observers say the new QFII scheme reflects a resumed enthusiasm of investing in China's capital market. And it has been going relatively well. Investor appetite has been increasing, and some are even planning to increase their quota. Swiss banks Credit Suisse First Boston and UBS have both confirmed that they are in the process of applying to increase their investment quotas by US$700 million after winning an initial US$50 million quota.
(CRI May 13, 2004)
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