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New territories
By JI JIN (China Daily)
Updated: 2007-09-24 07:17

The speed of issuing Fund QDIIs (qualified domestic institutional
investors) is gaining momentum after the launch of the country's first
equities QDII product on September 12, which was 233 percent
oversubscribed.

The country's first equities QDII fund, managed by China Southern Fund
Management Co Ltd, attracted around 50 billion yuan worth of
subscriptions on the first day. Southern Fund originally planned to raise
15 billion yuan. In view of the large demand, the State Administration of
Foreign Exchange has approved doubling the amount to 30 billion yuan.

"Investors' yearning for new financial products and the slowdown of pilot
schemes to allow mainland investors to invest directly in Hong Kong, have
jointly contributed to the strong demand of China Southern's QDII
product," says Hu Zhuowen, an analyst at Orient Securities.

"Compared to the previous QDII products managed by banks, insurance
companies and trust companies, the China Southern fund is subject to less
restrictions on product range, making it more attractive to retail
investors," says Zhou Liang, China head of research at Lipper.

Since the government allowed fund management companies to apply for QDII
licenses on July 5, six have obtained approval. But so far only Southern
Fund and China AMC Fund Management Co Ltd have secured the QDII quota
from SAFE for a combined $4.5 billion.

The other four joint ventures that have received licenses (Fortis Haitong
Investment Management Co Ltd, Harvest Fund Management Co Ltd, China
International Fund Management Co Ltd (CIFM) and Fortune SGAM Fund
Management Co Ltd) are still waiting for the green light to issue.

Southern Fund planned to invest 60 percent of the proceeds of its QDII
fund mainly in the ETFs (Exchange Traded Funds) in developed countries
and regions, including the US and UK, and stocks in Hong Kong. The other
40 percent was earmarked for investment in equity funds and ETF in the
emerging markets of India, Russia, Mexico and Brazil.

"We regard Hong Kong as a very important market because of the lower
price of A shares than H shares," says Ding Chen, managing director of
China Southern Fund.

Southern Fund has introduced a foreign partner, Mellon Financial Group,
which provides investment expertise in overseas markets. "Mellon has
designated three fund managers, separately located in the US, Germany and
London, to work with our team," Ding says.

Fortis Haitong planned to mainly invest in the Hong Kong market and
"Chinese concept" stocks in the international markets.

Unlike Sourthern Fund, Fortis Haitong says it has no plans to introduce
foreign consultants. "Our own team has rich experience in the investment
consulting business overseas for many years, and we have been an advisor
to the Luxembourg-registered Yangtze fund," says Tian Rencan, CEO of
Fortis Haitong Fund.

Other fund management companies that met the criteria for QDII
application are hurriedly preparing application materials, including
product design and investment team arrangement, to the China Securities
Regulatory Commission.

"We are still in the process of QDII application and expect to get the
license soon," Li Jianguo, vice-president of Fullgoal Fund Management Co
Ltd, tells China Business Weekly in an exclusive interview from his
office, where he is sometimes interrupted by people requesting details
about QDII materials.

"We planned to invest mainly in North America, Europe and Hong Kong
markets, with our focus in Canada," Li says. Fullgoal Fund was jointly
held by Bank of Montreal, SYWG BNP Paribas Asset Management and Haitong
Securities.

"Through the QDII scheme, investors can invest internationally to
leverage risks," says Yang Yifeng, deputy-director at CIFM, a JPMorgan
Asset Management (UK) Ltd's joint venture. CIFM has received the QDII
license, and targets its investment scope in the Asian market.

"The stock price fluctuation in developed countries is less volatile than
that in emerging markets, which involve lots of speculations," says Hu at
Orient Securities.

"But investment in emerging markets is expected to yield a much higher
return," he adds.

Analysts warn that investors should be aware of the risks of overseas
investment, including currency exchange and political and policy changes.
"Unlike domestic investment, most mainland fund companies still lack
knowledge of foreign investment," Hu says.

(China Daily 09/24/2007 page5)

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