Wednesday, January 30, 2008

Chinese Investors Get to Be on U.S Stocks

--As China's stock market slumps from its recent dizzying heights, investors in the world's most populous nation increasingly have the option to move money into shares traded overseas, including the U.S --In the latest move to give Chinese investors access to the U.S. market, the U.S. Securities and Exchange Commission is expected to sign a memorandum of understanding in the next several days with the China Banking Regulatory Commission that will allow banks in China to develop U.S.-stock mutual funds for their clients, according to a person familiar with the situation. --The move is noteworthy because while mutual-fund companies in China can already offer their clients access to the U.S. markets, banks cannot yet develop their own stock funds. --Already, brokerages, banks and fund companies in China are pitching to the country's investors a fast-expanding array of mutual funds and other products that invest in, or reflect values of, world-wide stock and bond markets. Dubbed QDII, for qualified domestic international investor, the program marks the first legal channel for China's investors to put money in foreign financial markets. --Until about mid-2006, tough capital controls made it almost impossible for individuals in China to convert yuan into U.S. dollars and other foreign currencies, much less invest in overseas stock and bond markets. Now, individuals can convert yuan worth as much as $50,000 a year, reflecting how Beijing is eager to offset continued inflows into China by sanctioning more outflows. --The pending U.S.-China agreement for banks moderately expands the existing channels for foreign investment. Under it, banks in China will be permitted to design their own U.S. stock funds -- instead of selling products on behalf of other firms like mutual-fund companies. Banks are important because their branches are the primary platform for distributing financial products in China. --One hitch is frustrating the QDII industry: Individual Chinese don't yet show much enthusiasm for global investing -- in the U.S. or anywhere else. Almost all of the products introduced so far have been undersubscribed, and many have declined in value.

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