Wednesday, December 19, 2007

China frees banks to invest in Britain

Britain yeserday became only the second destination, after Hong Kong, in which Chinese banks can invest their clients’ money.

The reforms are expected to boost investment in London’s biggest companies as well as bring a welcome injection of liquidity into global markets. However, analysts said yesterday that the change would not happen “overnight”.

China’s Qualified Domestic Institutional Investor program (QDII) will allow banks to direct some of their funds to Britain. They may only invest in countries whose regulators have signed a memorandum of understanding with the China Banking Regulatory Commission.

The move is the latest development in a Chinese scheme to encourage limited capital flows out of the country and to relieve upward pressure on the yuan.

Banks will soon receive permission to invest QDII funds in US stocks and mutual funds as well.
Chinese brokers and mutual funds with a total QDII quota of nearly $US40 billion ($A46.7 billion) are already allowed to invest their customers’ funds in stocks in 33 countries.

While the relaxation is unlikely to result in a sudden rush of money into London, fund managers yesterday said the change would benefit FTSE 100 companies and global markets in the long term.

Brian Dennehy, a fund manager at Dennehy Weller, said: “This is a process rather than an event. On balance it will be positive as it is another serious source of liquidity to global markets at a time when this is a key measure in improving the UK economy.”

He added: “London is recognised as a place for Chinese banks to get global exposure so FTSE 100 companies in particular will benefit, although I can’t see this having a great impact for small and mid-cap stocks unless some great value is recognised there.”

China’s domestic investors have traditionally shown a preference for markets closer to home, such as Hong Kong, with which they are more familiar and where a number of Chinese companies are listed.

In addition, the banks’ clients must invest a minimum of 300,000 yuan ($A47,400) in those funds - an enormous sum for most Chinese.

No comments: