Changpeng Wan
Major Quota Allocation Signals New Opportunities
Following China’s State Administration of Foreign Exchange (SAFE) allocating $17.1 billion in new QDII quotas at June’s end, numerous funds have eased restrictions. This QDII fund reopening marks a significant shift after previous constraints forced many funds into premium trading positions and strict purchase limits.
Foreign investment quotas now total $1708.69 billion across 191 institutions, with mutual funds securing over half the allocations. Sixteen fund companies including E Fund Management received $50 million each, while others like China Asset Management got $40 million allocations.
Implementation of Increased Investment Limits
Fund Companies Adjust Policies
Immediate responses included E Fund increasing its Nasdaq ETF daily purchase cap twentyfold (from RMB 100 to 2,000) on July 7. Huabao Fund concurrently raised thresholds across multiple products:
– NASDAQ Select Stock QDII: Threshold increased 400% to RMB 20,000
– Overseas Technology Stock QDII-LOF: Entry barrier quintupled to RMB 10,000
– Hybrid QDII Fund: Requirement escalated tenfold to RMB 200,000
Persistent Accessibility Challenges
Despite the QDII fund reopening, 221 of 311 QDII products (71%) still impose restrictions – 130 with purchase limits and 91 completely suspended. A fund manager noted: “QDII demand chronically outpaces supply. Quotas prioritize premium reduction while responding to high-demand markets.”
Hong Kong Market Emerges as Top Performer
Hong Kong-focused QDII funds outperformed US counterparts during H1 2025, with biotech-themed funds surging beyond 50% returns versus Nasdaq ETFs averaging 8%. CICC cites Hong Kong’s advantages:
• Estimated RMB 300 billion in southbound capital inflow
• Persistent valuation discounts:
– HSI at 20% below historical average
– Dividend yields exceed global peers
• Concentration of innovative Chinese firms with competitive moats
Zhonggan Fund highlights healthcare and AI opportunities despite recent gains: “Hong Kong equities remain fundamentally undervalued internationally.”
US Market Resilience Creates Opportunities
Record Highs Amid Policy Uncertainty
Although trailing Hong Kong initially, US indices recently hit historic peaks:
– S&P 500: Record high
– Nasdaq: New peak
– Dow Jones: Near all-time maximum
Shanghai-based analysts cite dual drivers: Continued AI sector expansion (reflected in surging Big Tech user metrics) and potential Federal Reserve easing. CME data projects 92.5% probability of rate cuts by September.
Contrasting Economic Scenarios
A fund manager cautions: “US outcomes hinge entirely on soft landing sustainability. Policy disruptions could trigger corrections, while AI breakthroughs remain the core bullish case.” Pu Yin An Sheng recommends cautious optimism, noting Silicon Valley’s strong fundamentals.
Market Outlook and Strategic Positioning
SAFE’s quota expansion specifically targeted strategic allocation gaps:
Combined Allocation (Public Funds)
$500 million: E Fund, GF Fund, Fullgoal Fund
$400 million: ChinaAMC, Southern Fund
$300 million: China Merchants Fund
$200 million: Industrial Fund
Meanwhile, newcomers Ruifeng Fund and Caitong Securities secured maiden $50 million quotas. Eleven asset managers including Galaxy Fund await QDII eligibility approval.
Practical Guidance for Investors
With the QDII fund reopening creating fresh offshore exposure channels, investors should:
– Evaluate Hong Kong funds capturing biotechnology and AI innovations
– Assess US ETFs blended with Treasury holdings for volatility buffers
– Monitor premium/discount ratios before entering restricted funds
– Consult advisors about quota-weighted allocation strategies
QDII reaccessibility offers timely portfolio diversification, yet requires selective entry given persistent constraints. Professionals recommend reviewing prospectuses at China Securities Regulatory Commission for eligibility details.
YWAMER updates comprehensive QDII product listings quarterly. Qualified investors should capitalize before potential supply constraints reemerge in volatile markets.
