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China removes QFII quota to spur foreign investment

Due to a lack of catalysts, US indices closed flat on Tuesday with a late rally in energy (+1.29%), industrials (+1.0%) and materials (+0.89%), helping to erase earlier losses. The global bonds sell-off continued as yields climbed for a fourth straight day.

The currency market is largely muted, with traders holding their breath ahead of tomorrow’s European Central Bank meeting, in which a 0.1%-0.2% rate cut is widely anticipated. AUD and NZD declined most among G10 currencies. JPY extended losses against other G10 peers alongside with other safe-haven assets such as gold and government bonds.

Risk sentiment is skewed towards the positive side today, but traders are carefully managing their exposure and positions due to weaker fundamentals and uncertainties on trade and global issues.

China unexpectedly announced a decision to remove the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) quota on Tuesday; a move aimed to encourage foreign investment and further open up its capital market. QFII and RQFII were designed to allow qualified foreign institutional investors to invest directly into Mainland China’s bond and equity markets within a certain quota. Removal of such quota essentially means foreign institutions will have greater flexibility and room to navigate the Chinese market.

Against the backdrop of a lacklustre stock market performance and intensified trade war with the US, this move reflects policymakers’ willingness to attract foreign capital to vitalise domestic markets. Chinese brokerages, fund management firms and other financial institutions may benefit directly from the removal of foreign capital entry barriers. More measures to open up the China market is likely to be carried out in the months to come.

In Singapore, the Straits Times Index opened 0.4% higher alongside with the rest of Asia. The rally was boosted by the offshore and marine and banking sectors, whereas REITs were sold off for a third straight day. In the past, Singapore REITs offered consistent higher dividend yield compared to Singapore banks. Recently, the rally in REITs has pressed down their dividend yield to only 4.4%, lower than two of the three local banks. With similar yield, banks seemed to offer better growth prospects, and thus attracted capital flowing out of REITs.

Crude oil Brent - Cash chart


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