UPDATE 1-Chinese asset managers win extra yuan quotas for RQFII bond funds

Mon Jan 7, 2013 3:23am EST

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HONG KONG Jan 7 (Reuters) - Asset managers E Fund (Hong Kong) and China Asset Management (Hong Kong) have each secured a further 800 million yuan ($128 million) quota to invest in the mainland's capital market via offshore fixed-income funds denominated in yuan, amid investors' increased interest in buying yuan assets.

It brings the total quota for E Fund RMB Fixed Income Fund under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme to 1.9 billion yuan and raises the size of China Asset Management's bond fund to 2 billion yuan.

"China's yuan currency has better potential to appreciate this year, which makes RQFII bond fund an attractive option for investors who hope to secure steady returns while managing risks," said Henry Lee, a director at China Asset Management (Hong Kong)'s sales and marketing team.

Most analysts expect the yuan to appreciate at a faster pace this year against the dollar, compared to a 1 percent gain in 2012.

The return of growth momentum in China's economy and an improvement in trade will benefit the yuan this year, Cindy Fu, regional head of capital market products and securities brokerage at Standard Chartered (Hong Kong)'s wealth management department, told a press briefing on Monday.

The yuan will appreciate about 2 percent for the whole of 2013 and remains an attractive investment choice, Fu added.

China introduced the RQFII scheme at the end of 2011 with an initial quota of 20 billion yuan and raised that to 70 billion yuan last year, allowing foreign investors to use offshore yuan to buy mainland securities.

Nine fund houses and 12 securities firms shared the first 20 billion yuan quota. Each of these funds can invest up to 20 percent of their quotas in China's stock market and at least 80 percent in the fixed-income market.

E fund said its offshore yuan bond fund seeks to achieve capital growth in RMB terms through investment in a portfolio of bonds with a credit rating higher than AA.

The fund topped the RQFII fixed income funds with an accumulated total return of more than 5.45 percent for the institutional investor class from the inception date of the fund on Feb. 282012, to the end of the year, the company said in a statement.

Both E Fund and China Asset Management now manage a fixed income fund and an exchange-traded fund (ETF) under the RQFII programme. The quotas for their A-share ETFs denominated in yuan were also increased recently to meet strong demand.

($1 = 6.2303 Chinese yuan) (Reporting by Michelle Chen and Rachel Lee; Editing by Jacqueline Wong)

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