While the move is seen by analysts as long on symbolism and short on impact, it’s likely to help sustain the rebound in domestic equities ahead of the crucial anniversary as well as stabilize the currency, which is trading near a decade-low.
The announcement also follows last Friday’s decision by the central bank to inject liquidity by lowering banks’ reserve ratios.
The Shanghai stock benchmark has climbed almost 10% in the past month, the best performer among global gauges.
Rising turnover and increasing margin debt suggests investors are starting to flock back to equities after the trade war sparked a slump earlier in the year.
Overseas investors pumped a net 28 billion yuan (US$3.9bil) into the nation’s shares via exchange links last week, the most since November.
“This is a positive signal,” said Leb Ren, a market analyst at CMC Markets in Shanghai. “China had said it’ll further open up its capital markets, and now it’s done this ahead of October, which will boost sentiment for the trade talks.”
FTSE China A50 Index futures rose 0.5% in Singapore on Wednesday, while the offshore yuan traded near its highest level in two weeks.
Tuesday’s announcement came after the close of regular mainland trading.
“This seems to be a significant enhancement of QFII reformExisting quotas are not binding constraints, so the near-term flow impact will still be driven more by fundamentals, events and inclusions,” said Kinger Lau, chief China equity strategist at Goldman Sachs Group Inc.
Gerry Alfonso, director of international business department at Shenwan Hongyuan Group Co, said “the quota removals are a positive step as they allow international investors greater flexibility in planning their Chinese investments.
“It’s China’s gesture to reduce red tape and reinforce the message that it’s continuing to open the capital market
“There’s unlikely to be any massive short-term impact on stocks,” he continued.
Steven Leung, strategist with UOB Kay Hian (Hong Kong) Ltd, notes that “the move, together with the RRR cut and consumption policies, are part of a basket of measures for Beijing to stabilise the market before the Oct 1 anniversary and to help the economy counter the negative trade war impact.”
“The quota removal sends a signal that the A-share market is open and investment is flexible.”
“China is strategically making a positive push towards adding liquidity to the financial markets. It is not clear how the overall market will react to these moves, but it is clear that over the short term, the dynamics of the yuan will function as a litmus test on whether the strategy is working,” said Paul Sandhu, head of multi-assets quant solutions and client advisory for Asia Pacific at BNP Asset Management Inc. — Bloomberg
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