New fund on London Stock Exchange gives investors access to Chinese stock markets

9 Jan 2014 02:06 PM

Landmark agreement means from today, investors able to invest in Chinese stock markets in Renminbi through the London Stock Exchange.

A landmark agreement between two UK and Chinese firms means that from today (9 January 2014), for the first time, investors will be able to invest in Chinese Stock markets in Renminbi through the London Stock Exchange (LSE).

Hong Kong-based CSOP Asset Management, a subsidiary of China Southern fund management Co Ltd, and London-based Source will launch the first Renminbi qualified foreign institutional investor (RQFII) exchange traded fund (ETF) listed London.

This fund, which will be available to retail and institutional investors across Europe, will take advantage of CSOP’s Hong Kong’s RQFII licence to allow investors to invest directly in the top 50 companies in mainland China.

The Hong Kong and UK RQFII schemes allow financial institutions to use offshore RMB to invest in the Chinese mainland securities markets (stocks, bonds (including inter-bank), and money market instruments). China’s capital controls ordinarily restrict such cross-border activity.

The launch follows the Chancellor, George Osborne and Financial Secretary to the Treasury, Sajid Javid’s visits to Hong Kong and China earlier this year to build new ties between the UK and the Chinese and Hong Kong asset management industries and build on the existing synergies:

  • 62% of all RMB trading outside of China takes place in the UK
  • UK was awarded the first RQFII quota outside of greater China - quota is worth RMB 80 billion

Already a world leading asset management centre, London has a lot to offer investors. But the government is determined to make sure it doesn’t stand still. So at December’s Autumn Statement the Chancellor announced that the government will abolish stamp duty and stamp duty reserve tax on purchases of shares in exchange traded funds that are domiciled in the UK, opening the door for UK exchange traded funds to launch in London for the first time.

The Financial Secretary to the Treasury, Sajid Javid, said:

The launch of this RQFII ETF on the London Stock Exchange underlines the UK’s position as the western centre for offshore RMB, and the UK’s position as a global centre for asset management.

In October the UK and China agreed a number of measures that have cemented London’s status as a thriving Renminbi centre. The UK was awarded the first RQFII quota outside of Greater China, and the Prudential Regulation Authority agreed to consider applications from Chinese banks to establish wholesale branches in the UK. The launch of the first RQFII ETF in London is the latest step in this success story.

I hope that this partnership will pave the way for further collaboration between UK and Hong Kong based asset managers.

Trade and Investment Minister, Lord Livingston said:

As both our Prime Ministers have said, the UK and China are partners for growth. Increasing numbers of UK companies are selling their products and services to China with exports almost doubling since 2010 - reaching more than £1 billion per month and there has been more inward investment from Chinese companies in the last 18 months, than in the last 30 years combined.

London is the world’s leading international financial centre and today’s agreement marks the first direct link between the European and Chinese equity markets. It confirms London’s position as the global hub for RMB trading outside China.