China refrained from granting new quotas for residents to invest in overseas markets for a fifth month in August, the longest halt in six years, as authorities seek to stem weakness in the yuan.
The State Administration of Foreign Exchange, which has approved 132 local institutions to put as much as $89.99 billion in offshore assets via its Qualified Domestic Institutional Investor program, hasn’t granted new allocations since March. Quotas for overseas investors to access domestic capital markets rose $16.4 billion to $140.3 billion in the period, data from the regulator show. The yuan traded 1.8 percent weaker outside of China than inside the country on Monday, indicating depreciation pressure.
China is trying to open its capital account enough for the yuan to win reserve status from the International Monetary Fund, while trying to curb an exodus of funds from an economy expanding at the slowest pace since 1990. Chinese investors are seeking to diversify in overseas assets after the Shanghai Composite Index of shares tumbled 40 percent from this year’s peak on June 12. The yuan has slumped 3.5 percent in Shanghai and 5.2 percent in Hong Kong in the past 12 months.
‘Interest is there but whether the money can leave in the short term is the problem,’ said Thomas Kwan, Hong Kong-based chief investment officer at Harvest Global Investments Ltd., whose Chinese unit offers QDII funds. ‘To avoid triggering excessive yuan outflows, I don’t think regulators would grant additional QDII quotas in the short term.’
This post was published at David Stockmans Contra Corner on September 7, 2015.
Recent Comments