THE GRAND Hyatt in Shanghai is the highest hotel in the world, as it is located on the 53rd-87th floors of the Jin Mao Tower in the financial district.
To these elevated levels, 43 fund managers from 21 China-based funds, including 8 QDII funds, headed to meet the management of 9 SGX-listed companies to understand their business models and investment prospects.
The companies: COSCO, China Animal Healthcare, China Fertilser XLX, Li Heng, China Energy, China Hongxing Sports, China Sky, Synear Food and Yangzijiang Shipbuilding.
The 28 March event was the first-ever “QDII Funds Conference”, organised by Financial PR and UOB KayHian, and sponsored by Xpress Holdings Ltd and Shook Lin & Bok LLP.
The QDII Phenomenon
China now has some 18 QDII funds in operation, with some funds having started as early as October 2007 and some as recently as last week.
Market speculation on the nature and effect of QDII funds abounds with questions focusing on the modus operandi of QDII funds and the impact they could have on financial markets.
The funds invest in a variety of instruments including equity stocks in overseas (non-mainland China) markets. Some funds have between 80-90% of their portfolios in equity stocks. Others have 30-50% in equity stocks.
QDII funds have not had a great start. The first batch (华夏基金管理有限公司 China Asset Management Co.,Ltd, 南方基金管理有限公司 China Southern Fund Management Co.Ltd, 嘉实基金管理有限公司 Harvest Fund Management Co.,Ltd and 上投摩根 China International Fund Management) lost an average of 26.1% from their initial value between mid-October 2007 and 10 March 2008, according to reports by Guangzhou Daily.
Compare this to the average loss of just around 10% for funds investing only in A-shares during the same period.QDII funds have suffered from a slide in global equities.
They have so far mainly been invested in the US and Hong Kong markets, which have been highly volatile in the past months.
The funds have also suffered a setback from investors looking to capitalise on the hype surrounding QDII funds by selling equities targeted by the funds.
Before I headed for the QDII Conference, some fund managers told me that they expected QDII funds would become market leaders in the selection of stocks, expecting that investors in general would follow them into those stocks.
The reality so far, however, has been far just the opposite.
QDII funds targeting China assets?
Another question about QDII funds that investors want answered is whether the funds will look to invest in China-related assets or not. The argument in one camp is that QDII funds are set up to diversify China’s asset holdings and would thus avoid any investments that are directly related to China.
The other camp, however, argues that like any fund that seeks to perform well, QDII funds would invest in what they are familiar with – and China-related investments naturally come to mind.
From our research and talks with some of the fund managers, we found that the truth lies somewhere in between the two camps. To diversify China’s asset holdings, QDII funds hold many non-equity investments that are not directly related to the Chinese economy, including bonds and currencies.
With equity holdings, however, they so far seem to not have shunned away from China-related stocks. Indeed, if stock prices for the companies that attended the QDII Funds Conference are any indicator, the QDII funds have acted fast in buying up shares of some the companies that they liked, with the caveat that stocks bought into were all above S$500 million in market capitalisation.
Singapore a target for QDII funds?
Most of the fund managers we spoke to indicated that they have not had significant holdings in SGX-listed shares at the moment.
As reported in The Straits Times on 31 March 2008, even Chinese companies listed on the SGX-ST remain unfamiliar to China-based investors.
During the lunch discussion at the conference, Mr Ji Haisheng, Vice-Chairman and President of COSCO Corp (S) Limited, spoke on the merits of the Singapore stock market.
Explaining that Singapore investors are more measured and less speculative than their counterparts in the mainland and Hong Kong markets, he echoed the views of the attending SGX-listed companies when he said COSCO (Singapore) has benefited from the stable nature and longer-term horizon of Singapore investors.
Speaking at the event, Shook Lin & Bok partner Robson Lee shared insights into two key topics relating to the Singapore market:
* Understanding the law and guidelines on directors’ dealings in securities.
* Legal responsibilities in the financial management and auditing of public companies.
It remains to be seen if QDII funds will take a more aggressive position in the Singapore market from now on, but it can be easily concluded that future QDII Funds Conferences will certainly be well-received by the fund managers.