An additional tranche of quotas for China's 'A' share market is expected to hit the street in the coming months and will likely trigger a frenzy for synthetic exposure to the securities. The size of the tranche is reported to total around USD5 billion and follows an initial quota of USD4 billion, which was tapped off in recent weeks, leaving bankers clamoring for more. "We've applied for an increase of USD300-500 million," said Nicole Yuen, head of China equities at UBS in Hong Kong, which has the largest outstanding quota at USD800 million.
The Qualified Foreign Institutional Investor scheme was launched in 2003, giving offshore participants access to renminbi-denominated 'A' shares (DW, 6/16/03). Since then, firms have been piling in, for instance offering clients market access products linked to the shares. The reports of a new tranche come in spite of the fall in share price levels this year, with China being one of the worst-performing markets in the region of late. "Frankly speaking, the lower the market goes the more interest we have from clients as the valuations are becoming more attractive," noted Yuen, adding as an example that more investors are looking at small and mid-cap stocks at the current levels. "Everyone is looking for the diamond in the rough," concurred an equity derivatives head.
