.jpg)
As the world’s second-largest securities market opens, China could become one of the largest securities lending markets in the world following the Qualified Foreign Institutional Investor (QFII) rule changes, according to the Pan Asia Securities Lending Association (PASLA).
China amended its QFII scheme late last year to allow foreign investors to lend and borrow securities directly in the mainland market. Following a flurry of transactions, PASLA and international custodians now forecast that China’s equity and fixed income markets could knock the US off the top spot.
PASLA’s chair Stuart Jones states: “Given the scale of the market and the pace of progress, it would be reasonable to expect that China will become one of the biggest securities lending markets globally.”
Jones notes that it is unclear how long this will take and whether last year’s reforms will make possible a vibrant securities lending market for foreign participants within the next five years.
International custodians, including HSBC, Deutsche Bank, and Standard Chartered have also welcomed the liberalisation of the QFII scheme and were quick to facilitate the first domestic securities lending transactions on the day the rules changed late last year.
Standard Chartered’s executive director, sales, China Access, financing and securities services, Susan Yu, says the move is “a remarkable step forward opening up the domestic securities lending and borrowing market to global participants”.
Meanwhile, Deutsche Bank expects China’s markets to continue growing, corresponding to the country’s economy.
Tony Chao, head of securities services Greater China and head of securities services sales in North Asia at Deutsche Bank, says China will soon become “too big to ignore” for global investors, not only in terms of portfolio allocation and risk diversification but also for absolute returns.
A common opinion voiced by international banks active in China is that domestic assets can add diversification to global investors. Standard Chartered, Yu, explains that global investors can “enjoy the dividends brought by qualitative economic growth”.
However, he adds, global investors, must adapt to differing rules in China, similar to the rest of Asia Pacific. PASLA’s Jones explains that over time “China has become a very investible and accessible market and is engaged with the full spectrum of portfolio risk management products and the importance of different investor types to the ecosystem”.
“Embracing and understanding these factors is important to all global investors as they look to increase their exposure to such a large market,” he states. “Any evolution takes time and today’s reformed QFII scheme is a result of an ongoing dialogue and engagement by a regulator that is both forward-looking and collaborative.”
Now read: ‘The sleeping giant stirs’ in full from the latest issue of Securities Finance Times.
