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Asset Management / Treasury & Capital Markets / Wealth Management
China stock market to attract more foreign investors
First margin trading and securities lending deal under expanded QFII scheme completed
Janette Chen 29 Dec 2020

China has reached another milestone in further opening up its stock market this week as the first batch of foreign investors kicked off margin trading and securities lending under the expanded Qualified Foreign Institutional Investor (QFII) scheme. The market can expect more foreign capital inflows in 2021.

Citic Securities said on Monday (December 28) that it has opened the first batch of margin accounts for A-share trading for foreign clients under the QFII scheme, which is expected to attract more quality foreign investors into the market. And on Tuesday, Guotai Junan Securities announced the completion of the first margin trading and securities lending deal under the expanded programme.

Global investors have shown growing interest in Asia, particularly in the Chinese market, during the pandemic. Citi, Goldman Sachs and Nomura expect earnings growth of Asia stocks to exceed 20% next year. And Morgan Stanley has maintained its overweight position in the Chinese market.

According to J.P. Morgan, the Chinese yuan is expected to appreciate modestly in 2021, which would attract international investors to increase participation in the onshore China equity and fixed income markets.

But compared to more developed markets, the investor constitution of the A-share market still has much room for improvement.

Currently, institutional investors only account for 20% of the A-share market, with the remaining 80% taken up by retail investors. In terms of market cap, foreign investors just hold a 4% share of the market. By comparison, they hold more than 70% and 30% of the Japanese and Korean markets, respectively, according to UBS Securities non-bank financial industry analyst Cao Haifeng.

With the overall positive investor sentiment towards Chinese assets and the expanded QFII scheme attracting more foreign institutional investors, the investor make-up of the A-share market will eventually approximate that of the more developed markets where institutional investors normally account for 80%, Cao notes.  

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