Great wall of money: $250 billion to flow from China
By Chris Oliver, MarketWatch Last Update: 10:54 PM ET Nov 18, 2007Print E-mail Subscribe to RSS Disable Live Quotes HONG KONG (MarketWatch) -- The money flowing from China into global equity markets could tally as much as $246 billion next year, with markets in Hong Kong and South Korea expected to benefit the most, according to HSBC Global Research. "The great wall of Chinese money could be about to arrive," HSBC strategist Garry Evans wrote in a research report Friday. HSBC says it reached the $246 billion figure using a formula that assumes China's foreign-exchange reserve expanding at between $30 billion and $40 billion a month, while appreciation of the yuan would be held to 7% against the U.S. dollar. The formula assumes that little of the money will head into global bond markets as the yuan appreciates rapidly and U.S. Treasury yields decline. Chinese authorities have approved about $40 billion in outflows under the government's qualified domestic institutional investor scheme, comprising allocations granted to banks, mutual funds and insurance companies, HSBC wrote in the report. About $20 billion of those funds have been invested so far, mostly in Hong Kong stocks. To manage the value of its currency, China maintains strict controls on the flow of funds into and out of the country. Institutions wishing to invest funds abroad must seek approval from state authorities. HSBC said that next year Chinese authorities will likely approve $10 billion in overseas investments to mutual funds each month, while $67 billion will be invested through China's sovereign wealth fund, or China Investment Corp., and $27 billion will come from the "through train" investment scheme, which is likely to come into effect during the second half. Fund outflows that have been approved but not yet utilized will make up some of the remainder. Hong Kong is likely to remain a favored investment destination for Chinese fund outflows next year, with HSBC expecting it will receive about $94 billion. Investment in the former British colony should taper off around that mark because of Beijing's guidelines, which limit investment by a fund in any one market at 30%. Some of the remaining $153 billion will head in to South Korea, said Evans. Chinese fund managers he met during a recent trip to Beijing expressed strong interest. HSBC's estimates contain rounding errors and may reflect the bank's attempt to provide approximate figures. "There are cultural affinities between China and Korea," Evans wrote. "Seoul is only a one-hour flight from Beijing, and this is one market that is easy for foreign institutions to access." Other beneficiaries are likely to include Chinese stocks listed on exchanges such as Singapore. China Aviation Oil (CAOLF:CAOLF News, chart, profile, more Last:
Delayed quote dataAdd to portfolio Analyst Create alertInsider Discuss Financials Sponsored by: CAOLF, , ) , Evans said, is an example of just five Chinese stocks listed in the city-state with a market capitalization above $1 billion. Foreign stocks benefiting from Chinese growth in an indirect way, such as Singaporean property group CapitaLand Ltd. (CLLDY:capitaland ltd sponsored adr News, chart, profile, more Last: 9.65+0.05+0.52%
8:13pm 11/12/2007
Delayed quote dataAdd to portfolio Analyst Create alertInsider Discuss Financials Sponsored by: CLLDY 9.65, +0.05, +0.5%) and Australian resource firms, are also expected to be targeted by mainland fund managers, the report said. Evans said many of the China fund managers he spoke with had few plans to channel funds into U.S. or European markets for the time being. "They felt they needed more to study these markets more extensively before making any investments," Evans wrote in the report. So far this year, foreign investors have channeled $18 billion into Indian equities, $6 billion into Taiwanese stocks, $3 billion into Thailand, and been net sellers in South Korea, according to HSBC. Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.
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