Bargains lure foreign cash into A-shares
Foreign institutions bought heavily into mainland-listed stocks last month, a fresh sign that overseas investors are hunting bargains as two-thirds of the market’s capitalisation have evaporated
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QFIIs raise holdings to 82.2b yuan as stocks fall
Daniel Ren in Shanghai and Adam Chen in Beijing
Sep 12, 2008
Foreign institutions bought heavily into mainland-listed stocks last month, a fresh sign that overseas investors are hunting bargains as two-thirds of the market’s capitalisation have evaporated.
According to the China Securities Depository and Clearing, qualified foreign institutional investors increased A-share holdings by 30.57 billion yuan (HK$ 34.83 billion) last month to 82.18 billion yuan. That was more than three times the 9 billion yuan of shares they bought in July.
“It is a fresh sign that QFIIs always take a step ahead of other investors to sniff out good investment opportunities,” said Wei Fengchun, a senior analyst at South China Securities.
“The current low valuation on the A-share market created good opportunities to buy amid low risks.”
The Shanghai Composite Index has fallen 65.87 per cent since it peaked in mid-October last year. It declined 13.63 per cent last month.
While domestic mutual funds and brokerages predicted a further tumble, the foreign institutions are increasing their holdings believing that stocks are undervalued.
QFII investors bought an additional 860 million shares between April and August, taking the total to 1.3 billion shares at the end of last month, according to the clearing company.
The shares held by all the institutional investors including mutual funds, insurers and QFIIs were valued at 1.75 trillion yuan at the end of August, 122.2 billion yuan less than a month earlier.
The decline reflects heavy selling by the mutual funds and insurance firms as well as a decline in share prices.
Beijing tripled the total QFII quota to US$30 billion early this year to encourage foreign investment into mainland stocks.
“We expect part of the additional quota to be allocated over the coming months,” said Jing Ulrich, JP Morgan’s chairman for China equities.
QFII funds suffered a 42 per cent loss in the A-share market in the first half of this year, worse than the 37.5 per cent loss at mainland mutual funds, according to fund data provider Lipper.
However, foreign investors remained unfazed and were looking for solid stocks with huge growth potential, industry insiders said.
The China Securities Regulatory Commission launched the QFII scheme in 2003 hoping to bring in expertise from foreign fund managers.
Beijing initially granted a US$4 billion quota to select foreign institutions and raised this to US$10 billion early last year amid increasing demand for mainland-listed equities.
“A more coherent strategy and the full support of regional management will also be needed to reach an institutional market that is both wider and more complex than most head offices know,” Z-Ben Advisors said in a recent report.