Chinese investors flock overseas

Chinese investment in offshore assets is rapidly increasing, challenging outbound investment limits and complicating Beijing’s efforts to stabilise the yuan and revive domestic markets, Reuters reported on Wednesday.

The rush to invest offshore reflects low confidence in the domestic market, as evidenced by a 50 per cent year-on-year increase in sales of Qualified Domestic Institutional Investor (QDII) fund units in January, while domestic equity mutual fund sales dropped 35 per cent.

Exchange-traded funds (ETFs) tracking Nikkei 225 and Nasdaq-listed stocks have seen price premium risks as buyers bid well above the value of the underlying assets.

This outbound investment trend illustrates the pressure on China’s capital account and currency, as well as the challenges in rebuilding domestic investor confidence.

Managers are struggling to keep up with the demand and are turning away prospective investors or seeking alternative ways around limits.

The QDII scheme is capped by a quota set by China’s State Administration of Foreign Exchange (SAFE), with no new quotas granted since July.

This has led to restrictions on daily subscriptions for certain QDII funds, and some products have paused new subscriptions due to overwhelming demand.

Standard Chartered has also stopped its Chinese clients from making new investments in QDII products for commercial reasons.

Zheng Peng, a QDII fund portfolio manager at China Asset Management Co, expects the trend to persist, driven by a gap of almost 190 basis points between 10-year US and Chinese government bond yields.

(1 United States dollar = 7.1985 Chinese yuan)