SHANGHAI/HONG KONG: Unlike most other global fund managers facing massive redemptions in coronavirus-hit markets, Chinese funds that facilitate domestic investment in overseas stock and bond markets have been inundated by investors eager to buy on the cheap.
On Tuesday, China Asset Management Co (ChinaAMC) and HuaAn Fund Management Co joined a slew of Chinese money managers in restricting subscriptions in their overseas investment funds as they ran up against their foreign investment quotas.
Separately, Guotai Asset Management Co made its 13th warning to investors of the risks of buying its Nasdaq fund at a steep premium.
Under China’s restrictive financial regulations, one of the main ways for retail and institutional investors to invest in overseas markets is by buying units in funds registered under the outbound Qualified Domestic Institutional Investor (QDII) scheme.
There are however strict and narrow quotas for such funds, and the scramble for these on the secondary market has pushed up premiums to more than 50% in some products.
“This shows demand for overseas investment far exceeds foreign exchange quotas,” said Yang Siqi, an analyst at Hwabao Securities Co.
The recent savage selloffs in overseas markets had made “some Chinese investors think it’s time to start buying,” she added.
All the QDII exchange-traded funds (ETFs) in Shanghai witnessed net subscriptions this month.
The number of fund units in an ETF tracking Japan’s Nikkei 225 Index jumped more than five-fold, indicating rapid inflows, despite a 20% slump in the underlying stock index it tracks.
An ETF tracking Germany’s DAX 30 index saw its fund units nearly quadruple while the China Southern Hang Seng Index ETF Fund witnessed an 80% jump in fund units.
The sudden inflows forced a growing number of asset managers to restrict subscriptions owing to QDII quotas, which Beijing limits in order to restrain capital outflows.
ChinaAMC announced on Tuesday that two of its QDII funds that invest in overseas bonds would suspend daily individual subscriptions exceeding US$700,000 (RM3.107 mil). Hua An S&P Global Oil Index fund, another QDII fund, said it would suspend individual subscriptions exceeding 1,000 yuan (RM630).
Dozens of asset managers made similar statements over the past weeks.
Guotai flagged risks to investors in the Guotai Nasdaq 100 QDII ETF, saying that “blindly” buying its fund on the secondary market at a high premium “could result in major losses.”
The fund, whose portfolio includes Microsoft, Apple, Amazon, Facebook and Google parent Alphabet, changed hands at 3.15 yuan, representing a 23% premium over its net asset value of 2.57 yuan. Its underlying index, the Nasdaq 100 has lost 17% this month.
Meanwhile, seeking to capitalise on such Chinese demand for foreign assets in the long term, Pictet Asset Management said it plans to sell a global multi-asset fund to Chinese investors in the second quarter.
“The domestic and global markets have different economic drivers. The Microsofts, Apples of the world are very different from the Tencents and Baidus of China,” said Lawrence Tse, Pictet’s head of intermediaries, Asia ex-Japan.
This is a good time for onshore investors seeking diversification to act, he added. March 24, 2020, Reuters
