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E Fund juggles QDII demand

E Fund Management is one of several China firms, including GF Fund and Dacheng Fund, that imposed restrictions on purchases of their QDII funds last week.

Sharp falls in global stock markets and the value of Qualified Domestic Institutional Investor (QDII) funds with exposure to them apparently encouraged investors to go bargain-hunting, which threaten to exhaust the foreign exchange quotas of several asset managers, according to China’s Securities Times.

E Fund announced the suspension of subscriptions and fixed investments for two of its QDII products on its website on 11 March.

These included the relative safe haven of its Short-term USD Debt Bond Securities Investment Fund, and its Petroleum Crude Securities Investment Fund, whose NAV had reached depressed levels as the oil price plunged.

Subscriptions were suspended for other E Fund QDII products, including its CSI Overseas China Internet 50ETF Connection, S&P 500 Index, S&P Consumer Product Index Enhancement, S&P Biotechnology Index and Gold Theme funds, according to Chinese media.

However, yesterday the firm posted on its website that it will remove some restrictions on a couple of its funds previously affected.

Subscriptions and regular fixed-term investment to its Medium-and-Short US Dollar Debt Securities -Investment Fund and its Yifangda Crude Oil Securities Investment Fund have been resumed, but large-volume subscriptions remain suspended.

E Fund did not respond to a request for comment.

Quota limits

The  QDII programme was launched in April 2006 to allow domestic institutional investors to invest in overseas capital markets under the foreign exchange control system in China.

E Fund has a QDII quota of $2.85bn, which it was granted in April 2019, according the website of the State Administration of Foreign Exchange (Safe).

As of 28 February, there were 159 firms with QDII investment quotas worth $104bn, according to Safe.

Institutions with QDII licenses fall into four broad segments, including commercial banks, insurers, trust companies and securities firms/fund managers.

The latter have the highest quota volume, worth $4.68bn shared by 58 firms, according to Safe.

New quota allocations were suspended for three years from 2015 when China’s stock market crash triggered massive capital outflows. They were resumed in April 2018 and 24 firms received fresh QDII quotas of $8.33bn. The most recent new quotas were granted in May last year.

Meanwhile, China’s domestic mutual fund market continued to attract retail investors, even during the height of the coronavirus scare in the country.

As recently as last month, China’s mutual fund managers were still raising money for domestic products, including Penghua Fund Management which attracted $1bn for a balanced fund and Wanjia Asset Management, which garnered $430m for a similar product.

E Fund is one of China’s largest mutual fund managers, with around $39.5bn of AUM, according to the Asset Management Association of China.

Part of the Mark Allen Group.