China A Shares
China A shares are shares in companies incorporated in the Peoples Republic of China (PRC) that are listed on either the Shanghai Stock Exchanges or the Shenzhen Stock Exchange. They are quoted in the Renminbi (RMB) currency and are only available to domestic investors, qualified foreign institutional investors and foreign strategic investors approved by the China Securities Regulatory Commission (CSRC).
RQFII is the RMB qualified foreign institutional investor scheme. Launched in December 2011, it allowed Hong Kong subsidiaries of Chinese asset managers to establish RMB-denominated funds in Hong Kong for investment in mainland China. The CSRC initially set the total investment quota at 20 billion RMB which was subsequently divided between the relevant Hong Kong subsidiary entities. By November 2012 the quota had been raised to 270 billion RMB.
In March 2013 the RQFII scheme was further widened to include international banks and asset managers with a presence in Hong Kong, paving the way for a host of new products and fund launches. A move to daily liquidity as part of these new rules also opened up the possibility of using a UCITS structure to raise assets globally.
In October 2013, asset managers based in London and Singapore were also granted RQFII quotas, with London asset managers receiving RMB80billion. This move opened up a choice of locations for international managers who wished to avail of an RQFII quota.
A further noteworthy development is the launch on the New York Stock Exchange of a fund managed by Harvest Global Investments, the Hong Kong subsidiary of Harvest, one of China’s largest asset managers. Through a sub advisor relationship, a German asset manager has been able to effectively manage this RQFII product without an RQFII license. This is significant, as it suggests an alternative route for international managers to launch an RQFII product, namely through sub advisor partnerships.
Launch of Irish-domiciled China-A Shares ETF
In a move welcomed by the Irish Funds Industry Association, the first Exchange Traded Fund (ETF) to offer European investors direct access to China A-Shares has been launched In Ireland. The Irish-domiciled ETF invests directly into the China A-Shares market under the RQFII quota scheme.
Ireland is already the leading European domicile for ETFs representing approximately 32% of the overall market, servicing over €62 billion of the €195 billion European ETF market.