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Watchdog to further liberalize capital markets

By Xie Yu in Shanghai and Chen Jia in Beijing  (China Daily)

10:41, February 26, 2013

China's securities watchdog has completed arrangements to further liberalize the country's stock markets by raising or removing the limits on investment by foreign institutional investors.

The move was welcomed by domestic stockbrokers and investors who hoped the expected inflow of liquidity could help sustain the market turnaround.

"It is good news that the authority is expanding the channels for investment, which brings hope that there will be more capital in the market," said an unnamed insider with a fund management company.

But other analysts said the key issue remains investors' valuation of China's stock market. If they don't have confidence in the market, inflow will be limited, they said.

The China Securities Regulatory Commission said on Sunday it will soon release details of the new rules under which China will allow more institutions to enter the scheme. Currently, the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme is only open to fund management and securities firms.

Meanwhile, the commission will lift the limit on investors' portfolio composition to allow more capital to flow to the stock markets, Xinhua News Agency said on Monday.

Under existing RQFII rules, investors must invest no less than 80 percent of yuan funds they raised in fixed-income securities, with the remaining portion in stocks.

"The regulatory changes will make the RQFII program more attractive by giving investors more choices in what assets to buy on the Chinese mainland," said Dariusz Kowalczyk, senior economist at Credit Agricole SA.

The changes will also increase the number of intermediaries offering services to investors. "Thus, we expect interest in the program to grow and more funds (renminbi traded offshore) to be channeled into the mainland," he said, adding that a larger proportion would likely go into equities.

This will have some positive impact on A shares in the short to medium term, he added.

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