A flood of Chinese money is about to hit India's stock market. At least that is the partisan angle taken by Indian website Daily News & Analysis, on Friday's liberalisation of China's Qualified Domestic Institutional Investors scheme for domestic investors.
Prior to the rule change, Chinese investors could only invest in
unexciting foreign fixed-income and money-market products through the
Now, the range of allowed investments has been expanded to include
overseas equity markets — although I suspect that India will not be
the first port of call for most of this hot money.
The most obvious destination is Hong Kong, of course. Indeed, Hong
Kong's China stocks hit a record high today as investors bet on rising
fund flows from across the border after the rule change.
Officials hope that the loosening of restrictions may cool down
China's overheating domestic market by allowing domestic investors to
tap into equity markets overseas.
The change allows Chinese banks to invest up to 50% of its overseas
investment in stocks, with a single stock capped at 5% of a product's
The liberalisation is good news for foreign fund managers because it
means they can tap into China's $2,000bn in retail bank deposits
without having to set up domestic operations.
Previously, big western fund managers like Fidelity International
had steered clear of China's fledgling retail fund management sector
because they were obliged to set up JVs with local partners.
More than $100bn of investments could be channelled through the QDII
programme during the next two years, according to a research firm
quoted in this Financial Times article.