China's QFII quota lift likely to go further, says HK fund group

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China is likely to go further in scrapping the limit set on foreign investors in the onshore market, according to the CEO of the Hong Kong Investment Funds Association (HKIFA), Sally Wong.

Wong spoke to Citywire Global after the State Administration of Foreign Exchange's announced that sovereign funds, central banks and monetary authorities may now exceed previous restrictions on investment in mainland China under the so-called QFII programme.

'I think that the relaxation would extend to other types of investors - in fact, further opening up of the markets is definitely the trend going forward and we expect the pace will only accelerate,' Wong said speaking from Hong Kong on Monday.

'This can mean increasing the levels of inflows and outflows, further shortening the lock-up period, allowing more types of investors gaining access to the mainland capital markets, as well as more avenues for mainland investors to invest abroad.'

This past year has tended to see the supply of QFII credits, required for funds to invest in onshore markets, outweigh demand as Chinese equity markets underperformed previous years. This has caused some investors to apply for the credits towards near-end on anticipation that demand will return in 2013.

A slow welcome

Wong added that there were talks that a more liberalised policy on capital markets would extend to other controls such as an initiative, known as QDLP (Qualified Domestic Limited Partner).

Non-mainland investors currently make up around 3% of the onshore market. Increased demand, however, would not necessarily mean that Chinese authorities will make any rapid changes to their tight policy on capital markets, according to Wong.

'The mainland authorities will not do it in one big bang - they tend to introduce changes in a gradual and phased approach, and so far, they have managed the process well.'

Fund flows into Chinese equity funds reached a four-year high last week according to the latest data from EPFR Global Fund Data. ETFs accounted for 70% of the total inflows.