Funds News

China to Allow Banks More Markets for Client Funds

BEIJING (Reuters) - China said on Wednesday it would speed up efforts to give banks more options for where to invest their clients’ money, allowing them to diversify their portfolios in a time of increasing market volatility.

The China Banking Regulatory Commission said that it had signed an agreement with Singapore, paving the way for Chinese banks to invest in stocks and mutual funds in the city state.

That would expand beyond Hong Kong and Britain the markets in which banks can invest under the so-called “qualified domestic institutional investor” (QDII) scheme.

The agency also said in a statement on its Web site that it would sign similar pacts with the United States, Germany and Japan to provide domestic savers with a wider range of investment channels.

QDII was launched in 2006 as a way of offering more investment options for residents, helping to avoid the creation of asset bubbles at home and encouraging capital outflows, thereby easing some of the upward pressure on the yuan.

Faced with increasingly volatile domestic markets, the CBRC highlighted another rationale for the program, saying it “gives investors access to global capital markets and provides them with more options to balance returns and diversify risks in case one single market fluctuates.”

Beijing has so far allocated 23 banks a combined quota of $16.1 billion for overseas investment.

Chinese brokers and mutual funds, with a total QDII quota of nearly $40 billion, are already allowed to invest their customers’ money in stocks in 33 countries.

Many of the QDII products issued by fund managers have suffered greater losses than those offered by banks, as they are permitted to invest a greater proportion of the funds in shares.

China itself has not been immune to the market turmoil sparked by problems with U.S. subprime mortgages.

After nearly doubling in 2007 and gaining 130 percent in 2006, the benchmark Shanghai Composite Index .SSEC has dropped nearly 15 percent from a 2008 high set on Jan. 14, hit by sliding global markets and concern about heavy fresh supplies of shares domestically.

Reporting by Langi Chiang and Eadie Chen; Editing by Jason Subler and David Cowell