By consolidating the separate rules and measures that governed QFII and RQFII into a single set of rules, China’s securities regulator has breathed new life into an access scheme that was launched nearly two decades ago. The question going forward is how investors will take advantage of faster access and a broader range of securities.
Traditionally, QFII holders were institutions that took a long-term approach to their China investments. As such, the list of QFII holders includes many of the world’s largest asset managers, sovereign wealth funds and central banks, and even some university endowments. The index inclusion of Chinese onshore stocks and bonds have played a major role in making China’s onshore securities a mainstream investment theme. The number of investors taking a long-term, strategic approach towards China looks set to grow even more.
Whether these investors decide to use QFII over another scheme will depend very much on the range of securities that they are interested in, as well how sophisticated their strategy is – i.e. do they want futures or options? Another consideration is where they prefer to process their trades. If they use Stock Connect or Bond Connect, trading and settlement is completed offshore in Hong Kong. Trades conducted by QFII are handled onshore by local brokers and custodians.
The new and improved QFII regime will likely facilitate the steady inflows into onshore Chinese securities. It is a clear sign that China’s regulators are not holding back on their continued efforts to open its onshore markets to international capital, and that the access channels to the onshore market will continue to evolve to meet the needs of international investors.