Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Chinese liberalization continues despite slack demand
Undeterred by the current lack of demand from foreign investors for Chinese securities or funds, the Chinese authorities have nearly doubled the QFII quota and widened the reach for the smaller renminbi-QFII pilot program to include London and Singapore
The China Securities Regulatory Commission, in conjunction with the People’s Bank of China and SAFE (State Administration of Foreign Exhange) announced the surprise move on July 12, seen as the most decisive yet by new CSRC chair Xiao Gang.
With much of the previous quota of US$80 billion going unused because of lack of investor demand, the increase to US$150 billion in what foreigners can invest in China A-shares is seen more as a signal that liberalization is continuing under the new regime.
The “RQFII” scheme, which allows for renminbi-denominated investments being widened to other markets is probably more significant in the short term.
The Chinese funds management research firm Z-Ben Advisors said the moves: “… help assuage any concerns that CSRC may be slowing down its efforts in cross-border liberalization. We believe the large-scale increase to QFII quota in particular sheds light on the considerable speed of change currently underway in China”.
The latest moves follow continued work on the China “Funds Passport” which involves an agreement between the mainland and Hong Kong to allow managed funds to be marketed in both jurisdictions and under the same rules. The scheme is scheduled to get underway next year.
Of the 230 current QFII licence holders around the world, only three are Australian: AMP Capital, Macquarie and Platinum.
