China investors rush abroad

The outbound scramble illustrates the pressure on China’s capital account and currency and the challenges in rebuilding domestic investors confidence in their home market.

Chinese money is pouring into funds invested in offshore assets at breakneck speed, butting up against outbound investment limits and complicating Beijing’s efforts to revive domestic markets and stabilise the yuan.

The rush to invest offshore reflects low confidence at home and is evident in sales of funds issued under the Qualified Domestic Institutional Investor (QDII) programme, a key outbound investment channel that allows Chinese to buy overseas securities under Beijing’s strict capital controls.

QDII fund units sold in January jumped 50% year-on-year to a record high while those of domestic equity mutual funds dropped 35%, data from the Asset Management Association of China shows. Assets under management for QDII funds were up 19% year-on-year.

Exchange-traded funds (ETFs) tracking Nikkei 225 and Nasdaq-listed stocks flagged price premium risks in recent weeks as buyers bid well above the value of the underlying assets to grab a share. The outbound scramble illustrates the pressure on China’s capital account and currency and the challenges in rebuilding domestic investors confidence in their home market.

Chinese stocks are wallowing near a five-year nadir while yields on the country’s 30-year treasury bonds have plumbed record lows.

“We feel a pressing need from our wealthy clients to diversify asset allocation,” said Le Rong, founding partner of Shanghai-based FR Harvest Asset Management. After 20 years of high growth and high returns, the Chinese economy faces a slowdown in the foreseeable future,” he said.