Taiwan eyes RQFII boost for ETF market

Nov 6, 2012

China and Taiwan are in talks to address issues preventing Taiwanese asset managers from obtaining RQFII quotas.

Taiwan is in talks with China’s central bank to allow Taiwanese financial institutions to obtain renminbi qualified foreign institutional investor (RQFII) quotas and develop RQFII ETFs.

Pony Huang, vice-president of corporate planning and strategy at the Taiwan Stock Exchange, sees this as a way to broaden the product range offered by local asset managers.

Speaking on a panel at Citi’s ETF conference in Hong Kong yesterday, she said Taiwanese investors put $4 billion into US ETFs, which equates to the same amount of capital as is in Taiwan’s ETF market.

To plug gaps in the local market, fund houses should add products to their range such as commodity and RQFII ETFs, argues Huang.

Discussions between Taiwan’s central bank and the People’s Bank of China are still in the early stages, she notes, and she could not give a timeframe for when Taiwanese financial institutions might receive RQFII quotas or suggest which firms might enrol in the RQFII programme.

Huang estimated that the first RQFII batch would not be a large amount, but did not suggest a specific sum.

Yet challenges remain for launching RQFII ETFs in Taiwan. One is how offshore RMB will be cleared and settled. Another is that only subsidiaries of Chinese securities firms and fund managers that obtain a licence are eligible to apply for RQFII quotas. The two central banks will discuss how to tackle these problems, says Huang.

The China Securities Regulatory Commission reportedly plans to expand the RQFII programme by increasing the amount of RQFII quotas and allowing more financial institutions in Hong Kong to apply for them. As of September, RQFII quotas totalled Rmb39 billion ($6.2 billion), according to China's State Administration of Foreign Exchange.

However, RQFII products may not be the best investment tools for attracting money from Chinese investors, some say.

Mainland investors looking to invest in Hong Kong, will not come to Hong Kong for RQFII or synthetic ETFs, argues another panellist David Quah, assistant vice-president in the cash market and trading division at Hong Kong Exchanges and Clearing.

Chinese investors are more interested in accessing the foreign market, he adds. ETFs offering, for example, S&P500 exposure are more attractive to mainland investors than A-share ETFs.