Top Biz News

Customers wary of investing overseas

By Li Xiang (China Daily)
Updated: 2010-01-25 08:02

Funds for overseas investment run by qualified domestic institutional investors (QDII) in China are still having a hard time attracting customers who seem happier to focus on the more appealing domestic market.

E Fund Management Co Ltd, the country's fifth largest mutual fund company by asset, has raised 600 million yuan ($87.8 million) for its Asia-focused QDII fund but it was much less than the $1 billion quota it received last October.

"The amount we raised is within the expectations. The market for QDII products needs to be re-cultivated after the boom in 2007 and the failing performance during the financial crisis that brought huge losses to investors," said E Fund Management in a statement.

The low enthusiasm for QDII products is a result of low investor confidence following previous unhappy experiences in overseas investments.

"The short-term market demand will remain weak because the past failing performance of the fund companies has greatly damaged investors' confidence in overseas investment," said Liu Mingjun, an analyst at Cinda Securities.

The State Administration of Foreign Exchange suspended the issuance of QDII quotas in May 2008 after heavy losses on the products, which approached 80 percent in some cases, as the financial crisis sent global markets tumbling.

The regulator lifted the ban last October when it was judged the global economy had passed the worst of the financial crisis and granted a combined $7.4 billion in QDII quotas to nine fund houses. However, the sales performance of the QDII products for 2010 is not yet known.

China's rapid recovery combined with a strong rebound of the stock market in 2009 and the high expectation the appreciation of the yuan also made QDII products less appealing to Chinese investors.

The benchmark Shanghai Composite Index surged nearly 80 percent in 2009 as one of the world's best performing markets. The tuan is also expected to appreciate by at least 3 percent in 2010.

"China is going to sustain the momentum of its fast recovery. Why would I invest abroad when the real investment opportunities are in the home market?" said Zhang Jian, a 45-year-old investor from Beijing.

China introduced the program in 2006 to allow domestic funds to be invested abroad. It is seen as a strategy to encourage capital outflow in order to ease the pressure on the appreciation of the yuan and hot money inflows.

Analyst said the year 2010 is poised to be a testing year for QDII products but fund management companies remain optimistic about the prospects.

Guotai Asset Management Co and China Merchants Fund Management Co are likely to launch new QDII products soon. Guotai Asset Management has said it planned to launch in March China's first index-tracking overseas fund, which is pegged to the NASDAQ 100 Index.

However, China's fast recovery aroused concerns among investors about inflationary risk and asset bubbles in the economy and many are rethinking the investment opportunities abroad.

A recent Bloomberg survey showed that China is viewed as a bubble by 62 percent of investors. One third of investors said China posed the greatest downside risk. Meanwhile, sentiment toward the US investment climate has flipped with nearly 60 percent respondents feeling optimistic about it.

"The QDII product is a tool to diversify risks so I will probably consider investing in some of the funds when the global financial market, especially the US economy, shows signs of solid recovery," Zhang said.