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`Crazy demand’ for foreign assets fills QDII in one day

China Asset Management finished raising onshore money for its overseas-focused bond fund in just one day.
Fund Selector Asia

The China AMC Select Greater China Credit Bond QDII Fund invests offshore using the Qualified Domestic Institutional Investor scheme quota.

The firm said the QDII fund received “crazy demand” from investors, according to a Bloomberg report.

Ronald Yeung, China AMC (Hong Kong) business development director, declined to disclose the amount of subscription in total. But the fund prospectus showed that AMC could suspend sales after they reach RMB 200m ($30m) from more than 200 people.

The majority of the subscriptions are driven from individual investors rather than institutions, Yeung noted. “Onshore investors now make use of every single way to diversity their assets with other currencies,” Yeung told FSA.

Although sales of the QDII fund have stopped, its sales period was supposed to last from July 25 to August 19, AMC’s website showed.

According to the firm’s website, the fund’s basic aim is to preserve capital. It is rooted in China but the manager looks for credit bonds issued by onshore or offshore Chinese enterprises globally.

Next month, the fund house will also launch the ChinaAMC Select Asian Bond Fund in Hong Kong, which again will mainly invest in bonds issued by Chinese enterprises with a credit rating equal to or higher than B-, Yeung said.

“The target is to apply to sell the fund in the mainland through the Mutual Recognition of Funds scheme a year later,” he noted.

Demand for offshore assets

The heated response to its offshore bond fund is in contrast to mainland investors’ colder response to funds with onshore equity or a mixed asset focus. Assets in China’s onshore mutual funds fell 5.2% in the first half.

China’s demand for offshore-focus products, including QDII funds, is growing due to domestic market volatility, lower interest rates and yuan depreciation, according to Boston Consulting Group. The view is shared by mainland wealth managers Jupai and Noah.

As the mainland’s second largest mutual fund house by assets, China AMC has $3.5bn of QDII quota in total.

Across all fund management houses, about 40% of QDII funds have announced a halt in sales due to either complete or large-scale subscription, the firm said.

The State Administration of Foreign Exchange approved 132 onshore financial institutions for $90bn of QDII quota, but stopped issuing new quota in March 2015 due to concern over capital outflows and the subsequent effect on the RMB currency.

Yeung believes “it is unlikely for Chinese regulators to issue more QDII quota in the near future.”

Part of the Mark Allen Group.