UK’s Ashmore Group Gets China Blessing

09-Jan-2014 Intellasia | Forbes | 6:00 AM Print This Post

Ashmore Group plc just got a late season Christmas gift from the Chinese.

One of the UK’s biggest emerging markets fund managers, the $78.5 billion London-based Ashmore Group, got the nod by the China Securities Regulatory Commission to allow its clients access to coveted China A-shares, the investment company said in a press release on Tuesday.

The Commission granted Ashmore Qualified Foreign Institutional Investors status known as RQFII, making the UK firm one of the first to be allowed to invest in mainland China equities and bonds.

“The Chinese investment market is one the most dynamic in the world, and securing this licence from the Commission is a reflection of Ashmore’s long-standing commitment and deep ties to China,” said Christoph Hofmann, Ashmore’s Global Head of Distribution. “Our clients are looking for ways to to invest in China.”

Investors are gunning for a $4 trillion renminbi-priced money market and over $3.5 trillion of stocks listed in Shanghai and Shenzhen. Most foreigners without Chinese-based brokerage accounts invest in China through Hong Kong. The Chinese A-shares equity market already has a market cap greater than the London Stock Exchange.

“These markets have traditionally been difficult for international investors to access until now,” said Ashmore emerging markets analyst January Dehn about the RQFII rule.

Some of the major companies listed on the Shanghai Stock Exchange include SAIC Motor Company, which sold 5.1 million cars last year, a 13.7 percent rise from 2012, but most are far from known entities like the Hong Kong listed companies. There’s also the consumer dairy giant Beijing Sanyuan Foods Company. China has had problems with tainted milk in the not so distant past. But the government is regulating and cleaning up the industry. Sanyuan is expected to be one of the big names that benefit from consolidation.

According to Ashmore, the RQFII scheme for London firms facilitates the investment of the growing amounts of offshore renminbi funds by large corporations and by retail investors in the onshore Chinese securities markets. Other currencies can also be invested onshore through a RQFII account as offshore renminbi is freely convertible with many currencies.

Ashmore is the first non-China based asset manager to be granted RQFII status and is working with HSBC, which was the first onshore Chinese custodian bank servicing a London based asset manager under the RQFII scheme.

RGFII was launched in December 2011. It first allowed a small number Chinese investment companies to establish renminbi-denominated funds in Hong Kong for investment in mainland securities. The aim was to allow overseas investors to use offshore renminbi deposits to invest in China. The China Securities Regulatory Commission initially set the quota at 20 billion renminbi divided between a number of companies, all of which were subsidiaries of mainland asset managers only. The quota was later raised to 70 billion renminbi and by November 2012 was increased again to 270 billion RMB.

By March 2013 the RQFII scheme was further widened, the Financial Times explains. Previously, the programme was only open to Hong Kong subsidiaries of Chinese-owned investment companies. But from then on, the Commission opened the A-shares and China bond market to foreign investment firms so long as they had an office in Hong Kong. The change is part of China’s strategy to slowly liberalise its financial markets to international banking, including new wealth management offerings both for Chinese and foreigners looking to buy into China.

Recently, in October, China allocated 80 billion RMB for London-based firms after a decision was taken to expand the pilot scheme beyond Hong Kong. Taiwan and Singapore-based firms are also approved for RQFII, but US firms are not.


Category: China

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