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Fund managers get creative to beat quota squeeze amid Chinese demand for offshore assets

  • Soaring demand from Chinese investors for offshore investments has left foreign banks and fund managers scrambling to ration QDII quotas

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An electronic ticker displays stock figures in Shanghai on Wednesday, August 7. Photo: Bloomberg
Soaring demand from Chinese investors for offshore investments has left foreign banks and fund managers scrambling to ration outbound-investing quotas, despite the recent sell-off in the US and Japanese markets.
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To cope with the surging appetite, firms using China’s Qualified Domestic Institutional Investor (QDII) programme are taking steps to get around the quota crunch, executives from a foreign bank, fund house, and wealth management units said.

China has approved a total of US$167 billion QDII quotas as of end-July to 189 institutions, with foreign firms each given US$300 million to US$4.7 billion. However, usage of the quotas is not publicly available.

Demand for QDII products, which allow mainland investors to buy overseas stocks, bonds, funds and structured products, is rising in the latest sign of waning confidence in local assets. Turnover on Monday of domestic A-shares amounted to 496 billion yuan (US$69 billion), the least since May 2020.

An underperforming stock market at home is driving demand for offshore assets from mainland Chinese investrors. Photo: Bloomberg
An underperforming stock market at home is driving demand for offshore assets from mainland Chinese investrors. Photo: Bloomberg

The steps to overcome quota limits underscore the challenges for foreign financial firms to fully leverage their global network and product suites in competition with peers in China, according to Jia Zhi, head of fund of funds, asset management at Hualin Securities.

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BlackRock, JPMorgan Chase and Goldman Sachs in recent years set up businesses in mainland China or boosted ownership of local units.

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