Updated March 6th, 2024 at 08:34 IST

Chinese investors flock overseas, exceeding outbound investment caps

The surge in offshore investment reflects waning confidence in domestic opportunities & is evident in the uptick in sales of funds issued under QDII programme.

Reported by: Business Desk
Chinese investors flock overseas | Image:Freepik Photo
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Chinese investors rush abroad: Chinese investors are rushing to invest abroad, surpassing outbound investment limits and complicating Beijing's efforts to bolster domestic markets and stabilise the yuan.

The surge in offshore investment reflects waning confidence in domestic opportunities and is evident in the uptick in sales of funds issued under the Qualified Domestic Institutional Investor (QDII) programme. The programme, under Beijing's strict capital controls, allows Chinese investors to purchase overseas securities.

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In January, QDII fund units saw a remarkable 50 per cent year-on-year increase to a record high, while sales of domestic equity mutual funds plummeted by 35 per cent, according to data from the Asset Management Association of China. 

Assets under management for QDII funds rose by 19 per cent year-on-year.

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The rush to invest abroad highlights the pressure on China's capital account and currency, as well as the challenges in restoring confidence among domestic investors in the local market. 

Chinese stocks are hovering near a five-year low, while yields on the country's 30-year treasury bonds have reached record lows.

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"We feel a pressing need from our wealthy clients to diversify asset allocation," said Le Rong, founding partner of Shanghai-based FR Harvest Asset Management, which facilitates QDII investments. Rong stressed the importance of diversification amid projections of a slowdown in the Chinese economy after years of high growth and returns.

However, managers are grappling with the surge in demand and are facing constraints in meeting investor expectations within the existing quotas set by China's State Administration of Foreign Exchange (SAFE). 

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Since July, no new quotas have been granted, leaving the cumulative approved quota at $165.5 billion, according to official data.

To manage the influx of investment, fund managers have implemented measures such as capping daily subscriptions and pausing new subscriptions for certain products. 

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For instance, ChinaAMC limited daily subscriptions for its Huaxia Global Technology Pioneer Hybrid Securities Investment Fund, while Standard Chartered ceased new investments in QDII products for commercial reasons.

Despite these challenges, the trend of Chinese investors seeking opportunities abroad is expected to persist, driven by the notable yield gap between 10-year US and Chinese government bonds, according to Zheng Peng, a QDII fund portfolio manager at China Asset Management Co.

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(With Reuters Inputs)

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Published March 6th, 2024 at 08:34 IST