Walter Hutchens’ Blog

One of the QFIIs will purchase shares in one of the PRC’s handful of open-ended funds, according to a Xinhua story. Being units of a mutual fund, such an investment could be liquidated at any time, returning to the QFII the relevant proportion of the net value of the underlying assets. But the QFII funds (once the mutual fund investment was liquidated) would still be subject to exit restrictions under the QFII rules, so that buying shares in a fund won’t allow a QFII to dump PRC shares and instantly yank their money out of the country. One issue is how QFIIs who purchase funds will calculate their ownership in particular companies. There is a limit in the QFII regs on how much of a particular listed company a single QFII (and all QFIIs in the aggregate) may hold. Presumably the percentage held indirectly through funds would have to be added to the total. This could be logistically challenging.

Another story reports Goldman has gotten SAFE approval to open its QFII custodian account with HSBC in Shanghai, though no details are in the story as to the amount. According to the story, Noruma, Morgan Stanley, Goldman, UBS & Citibank have all been approved by SAFE to open accounts. The CSRC approvals are already in place for those 5 plus two others who have yet to get SAFE “quotas” for how much they can invest.