NASDAQ-linked fund for China

Chinese investors may soon be able to invest in the first foreign index-linked financial product traded in China. The fund would include investments in major US companies such as Starbucks and Microsoft.

Shanghai-based Guotai Asset Management, one of the largest and most established asset management companies in China, has signed a licensing agreement with NASDAQ, the world's largest exchange company to use the NASDAQ-100 index to develop a product in China.

"This gives companies in the NASDAQ-100 index exposure to Chinese investors for the first time," said John Jacobs, executive vice-president of the NASDAQ OMX Group. The deal may be approved by the China Securities Regulatory Commission (CSRC) by year's end.

"China is the single largest source of new listings in the US, so the agreement with Guotai is a great opportunity to raise our visibility there."

Demand for indexed overseas products in China is rapidly developing, thanks to China's approval of the Qualified Domestic Institutional Investor (QDII) program three years ago. The program is designed to allow certain institutions to offer funds invested in foreign securities. The QDII plan has allowed for the investment of more than $40 billion of the country's estimated $3 trillion of household savings into overseas financial markets.

But China is still a relatively closed market, where the average investor cannot buy 100 shares of a company such as Apple, so getting NASDAQ into China is a big step in the development of the domestic investors' asset allocation plans.

Guotai's international business managing director Shelley Yang said Chinese investors are becoming better educated. There is brand awareness on a macro level and very high profile names that are listed on NASDAQ. On a micro level, the stocks on NASDAQ are not all household names in China, but many are familiar, such as Starbucks.

"The market is young right now but there is more knowledge about these kinds of investments," said Yang. "So we are in a better position now than four or five years ago, to push this product out."

Despite the difficulty of doing business in a foreign country, particularly China, Jacobs said it "has been a very smooth, straight forward process for us".

The next step is planning road shows. Yang said having NASDAQ as a partner would go a long way to educating clients. "We are going to meet a lot of individual clients and institutional clients and explain the NASDAQ-100 to them."

(China Daily 04/06/2009 page4)