When the People’s Bank of China announced a framework for its qualified domestic institutional investor (QDII) programme in April, setting a roadmap for the investment of Chinese funds overseas, the initial reaction was one of heavily tempered enthusiasm.
Great, said analysts, but let’s be realistic: this process is going to be heavy on procedures, restrictive, and costly. Nothing’s going to change straightaway – not the investment habits of ordinary Chinese, not the outward views of Chinese banks and asset managers, and certainly not China’s external balance of payments.
For the past few months, that glass-is-half-empty view has been appropriate. A couple of nominally QDII funds have come from major banks, such as ICBC and Bank of China, but they have been nothing to set the pulse racing: the ICBC product invests predominantly in six-month money-market notes. And they have no choice. Banks can only invest in fixed-interest product, they have the additional financial burden of having to guarantee forex losses for their clients, and they do so in the full knowledge that the renminbi is likely to appreciate against other currencies, wiping out whatever meagre gains can be recouped from those markets in the first place.
But something different happened in August when Hua An, one of a handful of domestic asset management leaders being groomed by the state as national champions, was awarded a licence to be the first in a pilot scheme to try a more ambitious method of investment. Working with Lehman Brothers, Hua An will market to mainland investors a balanced product involving investments in global equities, global fixed interest, US Reits and global commodities.
Naturally there are numerous caveats, about who can be sold to and how they must be protected, but the simple fact is this: Chinese people have never been offered an investment like this before. They have watched world stock markets soar without any opportunity to join in the ride (China’s A-share market has had its moments, particularly recently, but one could hardly call it a smooth upwards ride) and no facility to build expertise in global investment. That’s now going to change.
It might well be that the Hua An product, and the numerous variations that will follow it, will enjoy limited uptake at first. The domestic Chinese stock market is among the best performing in the world this year and people tend to stick with what they know. But nowhere does money move faster and with such unity as in China: in the first quarter of this year money-market funds accounted for 45% of assets invested in China, before the mood took investors to switch to equities, after which half of that total moved out again in the space of three months.
Another swing like that in favour of global product and we will no longer be able to think of the Chinese investor as a purely domestic player. He will have gone global, and Chinese savings will never look the same again.
