The increased regularity of outbound quota issuances, as well as the rising volatility in A-shares and the draw of strong US stock market performances, have increased the allure of overseas diversification among Chinese investors, according to Broadridge’s latest China quarterly review.
The report comes after China’s foreign exchange regulator last week expanded quotas under the Qualified Domestic Institutional Investor (QDII) programme. A total of $10.3bn in quotas was granted to 17 institutions under the outbound investment scheme, the State Administration of Foreign Exchange (Safe) announced on Wednesday.
Among beneficiaries were fund companies, securities firms, insurers, and banks, said the regulator, adding that the awards brought China’s total QDII quota to $147.32bn.
The approved quotas were the largest since the country implemented the QDII scheme in 2006.
This is the third time that Safe has issued QDII quotas this year, following the $8.85bn to eleven firms in April and $9.02 to 21 firms in January.
Since September 2020, the Safe has granted seven rounds of quotas with a value of $31bn to 173 institutions through the QDII scheme. About two-thirds of the newly issued QDII quota since then have been awarded to domestic fund managers and securities firms, said Broadridge, a global fintech firm that provides communications infrastructure for financial firms.
Overall, new outbound quotas, which include the Qualified Domestic Limited Partner (QDLP) and Qualified Domestic Investment Enterprise (QDIE) as well as QDII have totaled $70bn, Broadridge calculates.
“For global asset managers who are applying or have applied for the retail fund management company license in China, this is great news. Not only can they access partnership opportunities, they can apply for QDII quotas direct,” says Yoon Ng, Broadridge’s senior director Apac insights.
Recent QDII fund launches are riding on demand for technology-themed stocks, with a particularly strong interest in the US and Hong Kong markets.
Against this backdrop, both banks and securities units have increased their outbound quota sizes significantly.
Broadridge estimates addressable outbound opportunities to stand at $139bn as of Q1 2021 and accounts for around 75% of the total outbound quotas.
By addressable, Broadridge means assets that are not managed internally or invested directly, that is those that are outsourced to third party managers or awarded directly to asset managers (who are quota holders), but they may not necessarily have used up the full sum of quotas.
“Our base case scenario would see a tripling of addressable outbound opportunities over the next five years. However, concerns over capital controls remain and we’ve built different models to capture potential upsides and downside risks. Global firms will do well to have multiple scenario planning too,” says Ng.
