Funds in flux but big yields still elusive
Updated: 2008-03-19 11:31
In the US, Europe and other mature capital markets, QDII-type funds are evaluated positively if annual yields reach 15 percent. Given that China is an emerging market, the ambitious QDII annual target is 15 to 25 percent, Song Lu, an analyst at China Construction Bank, said.
Industry analysts also stressed that QDII products are a long-term investment tool and should be evaluated after a year or over a longer period.
"We should look at how fund companies are evaluated in mature capital markets overseas, where the evaluation period can be five years, three years - but one year at least," Zhao Xijun, associate dean of Renmin University of China's finance and securities institute, said.
Dong Chen, a senior analyst at China CITIC Securities, said it's not possible for China to jump from emerging to mature market in one step.
"The learning process may last two to three years and QDII products will be more mature at that time," Dong said.
The government has so far opened the door for mainland commercial banks to invest in Hong Kong, the UK, Singapore and Japan. The US and Germany are next.
While enthusiasm for the funds is waning among local investors, some are taking a punt on the long-term potential of QDII products.
That first round of products is mainly from Hong Kong and other Asia-Pacific stock markets.
"The new QDII products will be more widely distributed in places such as Europe," Zhao said.
Apart from geography, new QDII products should also span different types of markets, according to Ulrich.
"For example, while global stock markets are struggling, fund managers can transfer funds from stocks to commodities such as corn, soybean, crude oil, gold and other precious metals, which have a high level of appreciation and resilience," Ulrich said.
Some global banks are already investing in lower-risk industries. Bank of East Asia, Standard Chartered Bank, HSBC and Deutsche Bank all released new QDII products recently. Most will invest in bonds, agriculture and energy.
The exchange rate also affects QDII product yield and the appreciating yuan is increasing investor risk.
"QDII products can be designed to combine, for example, gold investment and foreign exchange. Investors could also use options and other derivatives to avoid exchange rate risk," Ulrich said.
