China may triple Luxembourg's RQFII quota

Tiananmen square2The Chinese authorities may increase the "surprisingly small" RQFII quota issued to Luxembourg, according to an industry analyst.

"We have little doubt that Lux will be able to double or triple its allotted quota if existing access is taken up at speed," says Shanghai-based Z-Ben Advisors.

China granted Luxembourg a quota of 50 billion renminbi ($8 billion) on April 29 under the Renmimbi Qualified Foreign Institutional Investors (RQFII) programme, making it the first domiciling hub to receive its own quota.

The move reflects the importance of Luxembourg, which is domicile to about two thirds of all internationally distributed Ucits funds. It will allow Luxembourg-domiciled funds to buy shares on Chinese mainland exchanges using offshore renmimbi, giving investors in the funds direct access to China's mainland stock market.

Given that the Chinese authorities have recently awarded large quotas to individual asset managers in Europe, such as Deutsche AWM, Z-Ben Advisors regards Luxembourg's 50 billion renminbi quota, which must be shared among many providers, as low.

However, the consultancy states that "the low initial quota strongly reminds us of a long-standing regulatory reflex: when demand for access is hot, be seen to be rationing supply".

©2015 funds global asia

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