HSBC and Citigroup are among the onshore China firms launching structured product issues now that regulators have given the green light. The China Banking Regulatory Commission has begun licensing domestic banks and onshore foreign houses to offer investments in overseas fixed income assets through the Qualified Domestic Institutional Investor scheme and the first products began filtering into the market this month.
HSBC in Shanghai recently launched fx basket-linked and index-linked capital guaranteed notes in U.S. dollars. While regulators require fixed-income assets only in the scheme, there is some flexibility in the rules as firms are issuing capital guaranteed equity derivative structures, pending approval on a case-by-case basis. "We're starting with fx and index-linked capital guaranteed notes but interest rate or credit products could be offered to widen the product sweep," said David Liao, treasurer at HSBC in Shanghai.
Earlier this month Citigroup also received its QDII license. "We are looking at providing the broadest product range possible," said Stephen Thomas, spokesman in Shanghai, adding it was too early to discuss upcoming launches.
International houses without onshore branches are looking to benefit by offering the derivative components for onshore products. An equity structuring head at a bulge-bracket house based in Hong Kong said he has been meeting with domestic banks to partner up for structured note transactions.
Market officials noted, however, that while there will be good interest for new products as mainland customers look to diversify their investments, the scheme won't mushroom overnight. "I see QDII growing gradually over time--presently renminbi appreciation remains a major consideration for investors," said Liao, as the currency move could diminish dollar-based returns.
