Money

ICBC Credit Suisse to tap China's demand for overseas equities

(Agencies)
Updated: 2010-06-03 11:59

ICBC Credit Suisse Asset Management Co aims to raise funds for overseas investments ahead of local rivals to tap a rebound in global equities when the world economy recovers.

"As soon as overseas markets stage a broad recovery, a wave of QDIIs is inevitable," Hao Kang, who manages the company's first fund under the nation's Qualified Domestic Institutional Investor, or QDII, program, said in a May 31 interview in Beijing. "We expect that to happen in two to three years."

The asset management unit of the world's biggest bank by market value began making investments from a second QDII fund last month and plans more such products in anticipation of a revival in appetite among Chinese investors for global equities. Hao's fund, whose net value per unit fell 5.9 percent as of June 1, is this year's best performer among the nine QDIIs launched before Dec 31, according to China Galaxy Securities Co.

The fund will buy more stocks in emerging markets such as Hong Kong, India and Brazil if prices tumble further, Hao said. He has been acquiring banking shares, especially in Hong Kong- listed Chinese mainland lenders, this quarter.

China introduced the QDII system in 2007 to allow fund managers, banks and securities firms to pool money from domestic investors to trade in foreign securities.

Drop in demand

Investors' enthusiasm for the financial product became muted as global equities slumped after the meltdown in the US subprime-mortgage market. While the nation's first four QDII funds raised more than $4 billion each, six of seven such funds started since May 2008 collected less than $90 million apiece, according to consulting firm Z-Ben.

ICBC Credit Suisse's second QDII fund raised almost 600 million yuan ($87.8 million), Hao said, compared with the 3.16 billion yuan in the fund manager's Global China Opportunity Equity Fund at its inception on Feb 14, 2008. The MSCI World Index, a gauge of equities in 24 developed nations, has dropped 27 percent since February 2008.

This year, China's benchmark Shanghai Composite Index has plunged 22 percent amid concerns that the government's crackdown on property speculation and Europe's debt crisis may hamper an economic recovery. The MSCI China Index has slipped 11 percent, while the MSCI World tumbled 9 percent.

Hao said his fund has added 1.1 million China Construction Bank Corp shares in the last three months, boosting holdings in the lender to 4.5 percent of its portfolio. Since April, the fund has also trimmed holdings in companies supplying raw materials such as copper, steel, aluminum and cement, Hao said, without naming the stocks.

Diversify allocation

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"Chinese investors still need to go out and tap the growth in emerging markets through a more diversified asset allocation strategy," Chen Chao, ICBC Credit Suisse's chief economist, said yesterday. "If the Chinese yuan's likely appreciation is a concern, other currencies such as the Canadian and Australian dollars are also strengthening" against the US dollar.

Hao's fund invests no more than 50 percent of its portfolio, valued at 1.9 billion yuan as of March 31, in overseas-listed Chinese stocks and the rest in foreign equities that are poised to benefit from China's economic expansion.

ICBC Credit Suisse, set up in 2005, manages nearly 90 billion yuan in 11 mutual funds as of Dec 31, according to its website. The company is ranked ninth among fund managers in China, according to financial news website Hexun.