SENSEX NIFTY
May 30, 2013, 01.21 PM IST | Source: Reuters

Will China investor snap up US stocks? Maybe not

Chinese investors so far have shown little enthusiasm for owning foreign stocks under limited investment schemes available in China and are more likely to channel their money into real estate.

Signals Beijing is preparing to unleash the buying power of Chinese individual investors on overseas markets may have some stock brokers salivating at the prospect the new money can add another leg to Wall Street's record-breaking rally.

But reality may be different. Chinese investors so far have shown little enthusiasm for owning foreign stocks under limited investment schemes available in China and are more likely to channel their money into real estate.

Also read: The sun will rise: Why investors still love Japan

The central bank said in January that planning for the trial of a domestic individual investor program would be a top priority this year and other statements, including from senior officials this month, supported allowing more freedom for money to flow out of the country.

That has raised expectations that a wave of fresh funds may be about to head into global markets.

"This may unleash a significant and growing amount of investment capital held by Chinese individuals into global markets including global stock markets," George Askew, US-based equities analyst with Stifel Nicolaus & Co. wrote in a research note distributed to clients.

Chinese savers had more than 44 trillion yuan (USD seven trillion) in personal deposits in Chinese banks in April, central bank figures show. If they invest 10 percent of their savings in foreign stocks - a conservative measure of portfolio diversification - they would spend some USD 724 billion in offshore bourses.

Although overseas stock markets - in particular those in the United States - have strongly outperformed Chinese indexes, mainland investors have been reluctant to own shares in foreign companies and analysts say regulatory tweaks alone are unlikely to change this attitude.

Scarred for Life

China's Qualified Domestic Institutional Investors (QDII) program, which offers mutual funds in overseas assets for sale to Chinese retail investors, has largely flopped.

Despite Chinese passion for foreign real estate, as rising prices from Vancouver to Singapore and London illustrate, regulators can not seem to give QDII quotas away.

The regulator, the State Administration of Foreign Exchange (SAFE), currently allows up to USD 44.7 billion in Chinese money to be invested under the QDII scheme. But less than a quarter of that amount has been taken up, data from Chinese fund analysis firm Z-Ben Advisors shows.

And the situation appears to be worsening. Even as the Standard & Poor's 500 index has set new records this year on Wall Street, assets under management in the QDII were shrinking.

Earlier this year, two Chinese overseas investment funds, targeting US home builders and Japanese equities, respectively, failed to raise enough money for inception.

"We were aggressively promoting the funds, but people were just not interested," said Shawn Liu, Shanghai-based managing director of one of the funds, AZ Investment Management.

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