Inflows into RQFII ETFs highly concentrated

ETF tradingAugust was the first month in which renminbi qualified foreign institutional investor (RQFII) exchange-traded funds (ETFs) had a positive net inflow in seven months.

These ETFs channel renminbi raised outside China and invest it directly into a portfolio of A-shares.

Data firm Morningstar estimates that the seven RQFII ETFs had a combined net inflow of 352 million renminbi (€34.6 million) last month. These numbers do not take into account the flows to the newly listed ChinaAMC CES China A80 Index ETF on its first day of trading.

The CSOP FTSE China A50 ETF attracted 610 million renminbi of net inflows, while four others recorded between 20 million renminbi and 150 million renminbi of net outflows each.

Through an investment quota granted by Chinese authorities, RQFII ETFs track the performance of an index composed of A-shares, which foreign investors can only access if they have a licence and a quota.

RQFII ETFs are renminbi-denominated, physical A-shares ETFs. Although it has been possible to replicate an A-shares index synthetically for some time, the physical replication is new.

Until recently RQFII ETFs had been exclusive to Hong Kong subsidiaries of Chinese asset managers – a “gift” from the regulator, as the scheme is known in asset management circles in Hong Kong.

In recent weeks, however, the Chinese regulators have allowed other asset managers with significant business in Hong Kong into the scheme.

Since the first batch of RQFII ETFs were launched one year ago, performance has been mediocre at best. The poor performance of the Chinese A-shares market has made it harder for asset managers to attract inflows for Chinese investment products.

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