- Global asset managers body has recommended that China lift foreign ownership caps in a listed firm
- Foreign institutional investors may be unable to invest in a few of the listed firms, especially in the small cap companies
ASIFMA, an industry body in Asia which represents global asset managers, has reportedly recommended that China should lift foreign ownership caps in firms listed in the country, just two weeks following disrupted overseas purchase of a Chinese stock and at a time when foreign inflows are expected to grow.
ASIFMA supposedly called on regulators, in a policy paper released on March 20, for abolishing the 30 percent aggregate foreign and 10 percent individual ownership ceilings in a China-listed company. ASIFMA stated that they are afraid foreign institutional investors would be unable to invest in a few of the listed firms, if these limits are not removed, especially in the small cap companies.
Vice-chairman of the China Securities Regulatory Commission, Fang Xinghai, recently mentioned that China is not considering relaxing the restriction on foreign ownership. These comments were made after regulators had blocked purchase of foreign shares in Han’s Laser Technology, since offshore ownership of the company neared the 30 percent cap. MSCI, an index provider, then removed the stock from its global benchmarks.
Sources familiar with the matter cited that later this year, MSCI could also quadruple the weighting of China in its emerging markets index. Rival index publishers S&P Dow Jones and FTSE Russell Indices are also planning on adding the Chinese stocks to their global benchmarks.
Charles Sunnucks, Jupiter Asset Management’s fund manager for emerging markets, said in a statement that the instances of foreign ownership reaching its limit, with the inclusion factor increasing further, would likely turn out to be more commonplace if local regulation do not change.
Chief China strategist at Morgan Stanley, Laura Wang, was quoted saying that the index weight adjustments stimulated by the foreign ownership rules could be additionally negative for the market sentiment, if rebalancing is made more volatile for fund managers.