Demand for overseas investment is growing in China amid the increased regularity of outbound quota issuances, rising volatility in A-shares and a strong US stock market. In its latest China Navigator Quarterly Review report, US fintech firm Broadridge Financial Solutions notes that outbound quotas in China have seen a major pickup since September 2020, with a total of US$70 billion of Qualified Domestic Institutional Investor (QDII) as well as Qualified Domestic Limited Partner (QDLP) and Qualified Domestic Investment Enterprise (QDIE) quotas being awarded in about seven months.
About two-thirds of the US$31 billion of newly issued QDII quota since September 2020 was awarded to domestic fund managers and securities firms. These firms have been encouraged by regulators to take the leading role in overseas investment.
“For global asset managers who are applying or have applied for the retail fund management company licence in China, this is great news. Not only can they access partnership opportunities, they can apply for QDII quotas direct,” says Yoon Ng, senior director of APAC Insights at Broadridge.
Recent QDII fund launches are riding on demand for technology-themed stocks, with a particularly strong interest in the Hong Kong and US markets. This is reflected in the flurry of fund launches such as domestic exchange-traded funds (ETFs) tracking the Hang Seng TECH index. “We expect passive vehicles like ETFs to be key beneficiaries of the short-term uptick in QDII interest,” Ng says.
Both banks and securities units have increased their outbound quota sizes significantly. Addressable opportunities, including those available to both quota holders and third-party managers via funds and other outsourcing vehicles, but excluding direct investment, are also growing fast. Broadridge estimates addressable outbound opportunities to stand at US$139 billion as of the first quarter of 2021 and accounts for around 75% of the total outbound quotas.
Broadridge’s outlook for addressable outbound assets is positive, based on expectations that there will be a good growth momentum, continuing the steady and regular increase in outbound quotas since September 2020.
“Our base-case scenario would see a tripling of addressable outbound opportunities over the next five years. However, concerns over capital controls remain and we’ve built different models to capture potential upsides and downside risks. Global firms will do well to have multiple scenario planning too,” Ng adds.