Wider asset choice in China to come to more investors
report from research and advisory firm Celent – ‘Chinese Derivatives Market:
Deregulation Brings Opportunities’ – predicts dynamic growth in the
underdeveloped sector as the regulatory environment becomes more favourable and
local knowledge of products improves.
The report, authored by Hua
with Celent’s Asian Financial Services group, notes that the scope of
securities firms in China is being widened with some already engaging in
overseas brokerage activities and consulting. Hedge funds will soon be granted
permission to operate, suggests Zhang, with trusts and private equity funds
already taking on many of their roles.
securities firms can already establish their own proprietary firms, asset
managers, and branches in Hong Kong, notes the report, enabling large
proprietary firms to trade cross-border easily and employ hedge fund
strategies. Assets under management at such funds is set to grow by 500% by
such as the Shanghai Futures Exchange can already handle most instruments, with
technological infrastructure and low latency capabilities already in place to
take advantage of further liberalisation of regulations, which the report
suggests is imminent.
products, such as stock index futures and CDS are also expected to see strong growth,
driven in part by Qualified Foreign Institutional Investors (QFII), who will
soon be granted greater access to Chinese markets, according to the report.
QFII, who were allowed access to Chinese derivatives only last year, are
restricted to using no more than three brokers and are not allowed to let
futures assets account for more than 10% of total assets. However, that limit
is set to be increased, according to Zhang. Foreign hedge funds are also expected
to begin to increase access to China’s derivatives market through QFII.
report concludes that Chinese market
participants have relatively straightforward product needs, but that with
limited derivatives products at home, financial institutions will increasing
look overseas for solutions.