I got an email from a friend at a UK investment fund. He’s on his way to Shanghai to help develop ways in which local investors can buy into foreign markets.
On October 23, E Fund Management and China Merchants’ Fund were given quotas of $1 billion and $500 million respectively to invest in overseas investments.
The word on the street is that around four more funds will be given large quotas before the end of the year. Investment funds in Shanghai are rushing to develop Exchange Traded Fund products for Chinese who want to follow foreign markets.
By May last year, 56 Chinese institutions had been granted a combined quota of $55.95 billion under the program, but there was a temporary suspension during the financial crisis.
This is all part of turning Shanghai into an international financial centre, and while the amounts are relatively small so far, the fact that they are being issued at all is significant.
Only now are regulators confident enough in the domestic market again that they are happy to allow money to flow overseas.
And by allowing some money to leave China, it takes the pressure off the government to revalue the yuan upwards. Morgan Stanley reckons that $25.6 billion of hot money flowed into China in the third quarter, so allowing some money to leave will help balance that.
Chinese investors now face a quandary. Many of them must be feeling that it is time to take profits on the mini-boom that has been fed by the trillions of yuan of stimulus cash.
But do they feel confident enough to put their money in foreign markets, most of which have been equally volatile and unpredictable since the financial crisis?