JP Morgan unveils first active RQFII equity fund

21 August 2014   Category: News, Asia, China, Global   By Hui Ching-hoo

JP Morgan Asset Management (JP Morgan AM) has launched its first actively managed RQFII equity fund, allowing investors to capture the potential of Mainland stock markets.

The announcement comes as market pundits anticipate that customised, innovative RQFII products will gain popularity overseas amid ongoing liberalisation of the Chinese A-share market.

JP Morgan AM said in a statement that the SFC-authorised JPMorgan China A-share Opportunities Fund has the flexibility to allocate at least 70% or more of its portfolio to China A-shares and up to 10% to Mainland-issued equity funds (including ETFs) that invest in A-shares.

In addition, up to 15% of the portfolio can be invested in B-shares and up to 30% in Chinese stocks listed in Hong Kong and the US, and non-PRC-issued equity funds (including ETFs).

Lilian Leung, the fund’s manager, said: “We believe that further liberalisation of China’s A-share market will gradually change the investor profile. At the moment, retail investors in that market account for as much as 80% of market turnover and they tend to focus more on small-to-mid cap stocks. Therefore, some good quality big cap names might be undervalued and greater participation from foreign and institutional investors, who might focus more on a longer term investment horizons, could support a potential re-rating of the market.”

The RQFII market has made progress in product differentiation since its inception in 2011, in view of the growing demands from overseas investors.

With the relaxation on regulatory control, RQFII participants have diversified their product mix to launch specialised funds. For example, China Universal rolled out the first sector-themed RQFII ETF products, the C-Shares CSI Consumer Staple Index ETF and C-Shares CSI HealthCare Index, in May.

Pieter Oyens, head of investment specialists, APAC, at BNP Paribas Investment Partners, told Asia Asset Management that he expects more customised RQFII products will come on stream going forward. In particular, he foresees a number of RQFII products being launched in jurisdictions outside Hong Kong, including Singapore, Europe, and even the US. The addition of more RQFII centres is likely to encourage further launches of products tailored for those local markets, he said.

“RQFII has been liberalised to such an extent that product providers have much more flexibility to tailor their offerings. Given these liberalisations, we don't believe the products will remain homogenous. In fact, the possibility to include RQFII more intensively in non-China specific products effectively leads to huge potential differentiation of products in which RQFII is used,” he added.