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QDII funds best bet for local investors

By Bi Xiaoning (China Daily)
Updated: 2009-05-06 08:11

An investor monitors share movement at a securities office in Haikou, Hainan province. Shi Yan

Qualified Domestic Institutional Investor (QDII) funds have benefited from a rebound in global stock markets in the past couple of months, and are becoming an increasingly attractive investment alternative for many domestic investors, experts said.

"It is the best time for domestic investors to invest in overseas markets since the asset bubble there has largely deflated in the financial blowout and the average valuation of their stocks has dropped to a much more reasonable level," said Li Daxiao, director of Yingda Securities.

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"I strongly opposed investing in QDII in 2007, when the asset bubble was huge," he recalled. But now, "the vastly deflated prices of the shares of many good and solid overseas companies are offering a once-in-a-lifetime investment opportunity for domestic investors," Li added.

According to a recent report from Guojin Securities, the main foreign stock indices have dropped by over 50 percent on average since the outbreak of the financial turmoil last year, and the average PE (price-to-earnings) ratio of the major listed companies has dropped to between seven and 10 times.

The relatively higher valuation of China's stock market has revealed a significant gap in premium with the mature and other emerging markets. Domestic investors can buy QDII funds to diversify their investment portfolios as well as risks, the report said.

Most QDII products last year suffered badly from the turmoil in the global capital markets, with some losing more than 70 percent of their value. Yet, they have benefited from a rebound in the global stock markets this year.

The latest data from market researcher Wind Info showed that 10 QDII funds have jumped about 8.6 percent in net asset value (NAV) this year, with an average NAV of 0.74 yuan.

The QDII fund of Fortis Haitong Investment Management Co, Fortis NV's China fund venture, topped the list with 1.15 yuan in NAV, jumping about 18.43 percent this year, while its NAV had been knocked below its face value of 1 yuan for most months since last September.

The fund, which invested mainly in Chinese companies listed in the US and Hong Kong, recently announced that it would pay 0.2 yuan in cash as dividend for 10 units each, making it the country's first asset manager to pay dividends to investors of an overseas investment fund. QDII funds were launched in 2006 to allow Chinese investors to park their money abroad.

"After becoming profitable, we aim to share the investment benefits with our clients and send a positive signal to boost investor confidence," said Chen Hong, fund manager with Fortis Haitong Investment Management Co.

According to Shenyin & Wanguo Securities, in the first quarter, QDII funds have hiked investment in Hong Kong and some emerging markets, including Thailand and Indonesia.

With the recovery of the capital market, China's securities regulator, which suspended approval of new QDII funds since the second half of 2008, also gave the nod to more QDII players. The China Securities Regulatory Commission recently granted QDII qualifications to ABN AMRO TEDA Fund Management Co, a Sino-Dutch joint venture.

Taiwan also recently allowed mainland QDII funds to invest in Taiwan's equity and futures market. The program will be formally kicked off after the financial regulators on both sides sign the memorandum of understanding.

"With more investment regions and attractive profits, QDII products will become an important investment channel for domestic investors," Li said.