Hong Kong’s Securities and Futures Commission (SFC) has published a list
of frequently asked questions on its website to help investors understand the
key features and risks specific to a new class of investment products which
directly invest in mainland China’s bond and equity markets.
Renminbi Qualified Foreign Institutional Investor (RQFII) status is granted
to qualified Chinese fund managers and securities companies to allow their
Hong Kong subsidiaries to channel RMB raised in Hong Kong to invest directly
in the China bond and equity markets (including the inter-bank bond market
and the exchange-traded bond market).
Announced last month, the pilot scheme to allow qualified Hong Kong fund managers
and investment companies to invest offshore RMB funds in China's securities
markets has been lauded as another major milestone in the process of transforming
RMB into an internationally accepted and widely used currency, and also a confirmation
of the strategic significance of Hong Kong as a testing ground for financial reforms in China.
Allowing investment in the Chinese equity market by means of the RQFII scheme
was part of the policies and measures China’s Vice Premier Li Keqiang
set out, in August last year, to expand the cross-boundary use of the RMB.
According to its guidelines, within the pilot project, which provides for an
initially-low RMB20bn (USD3.17bn) investment cap, an RQFII fund should be comprised
of at least 80% in RMB debt instruments issued in mainland China and an optional
not-more-than 20% in equity investments in that market. Subscriptions and redemptions
of fund units are settled in RMB.
“RQFII funds offer one of the most direct channels for local investors
to participate in the Mainland bond and stock markets,” said Alexa Lam,
the SFC’s Deputy Chief Executive Officer and Executive Director of Policy,
China and Investment Products. “Before investing in this new class of
products, investors should carefully read the offering document including the
product key facts statement to fully understand how a particular RQFII fund
works and the associated risks.”
As with all SFC-authorized investment products, features and risks of RQFII
funds are set out in their offering documents, and, on its website, the SFC
gives a number of the key risks specific to investing in an RQFII fund.
For example, there is concentration risk as an RQFII fund invests in a single
country, namely, mainland China, rather than broadly-based global investments;
currency exposure, in that investors converting a local currency (HK dollars)
to take up units of an RQFII fund are exposed to fluctuations in the RMB exchange
rate, as well as exposure to China’s exchange controls and restrictions;
and risks relating to fixed-income bonds, including interest rate risk, issuer
credit risk and liquidity risk.
LAWANDTAX-NEWS.COM
