StanChart suspends new investments from clients via China’s outbound channel

STANDARD Chartered has suspended new investments by its purchasers in China into offshore merchandise by way of a quota-based channel, the financial institution stated, amid a surge in demand for abroad investments attributable to weak spot within the native market and forex.

The London-headquartered financial institution cited “commercial reasons” as its clarification for the suspension of latest investments below the certified home institutional investor (QDII) programme. It didn’t elaborate.

StanChart’s transfer comes amid Beijing’s efforts to stem capital outflows as weaker yuan and a slowing economic system have pushed savers to maneuver property offshore.

The QDII programme, first launched in 2006, stays the most important outbound funding channel for Chinese traders. The scheme is capped by a quota set by the State Administration of Foreign Exchange (Safe).

The programme helps Chinese wealth and company purchasers spend money on offshore funds, bonds and different structured merchandise.

In a consumer observe issued by StanChart final week, which was reviewed by Reuters, the financial institution stated it will not take new subscriptions into offshore-domiciled funds bought by way of the QDII programme with impact from final Thursday (Feb 22).

“Standard Chartered China has suspended the subscription of relevant products for commercial reasons,” the financial institution stated in response to Reuters queries.

Domestic traders’ urge for food for abroad property has been rising strongly since late 2022, as China’s inventory market efficiency lagged behind the United States and different main offshore markets.

China’s blue-chip CSI300 index hit five-year lows this month, and is down 18 per cent in a few yr, pummelled by an unprecedented debt disaster within the property sector and an absence of large-scale authorities stimulus.

“Based on the data the probability is far greater that it was a commercial decision based on quota limitations rather than a stab in the dark that guidance from Beijing forced the issue,” stated Peter Alexander, founder and managing director of China consultancy Z-Ben Advisors.

“There’s been no new quota issued to StanChart since 2021,” he stated. “Clearly there’s been a surge in demand over the past several months and with that QDII quota capacity would have been reached.”

Capital outflows

As financial and geopolitical woes spur an exodus of traders from China, many have been redirecting cash into different markets together with Japan, giving the benchmark Nikkei index an additional increase because it rockets to all-time highs.

Beijing has unveiled a slew of market assist measures since final August, which included decreasing buying and selling prices, slowing the tempo of preliminary public choices and prioritising the launch of fairness funds.

StanChart’s transfer comes as China’s yuan has confronted renewed depreciation stress in 2024, weighed down by the US greenback’s resurgence in mild of market bets the Federal Reserve may wait longer than beforehand anticipated to start slicing charges.

The yuan has misplaced about 1.4 per cent in opposition to the US greenback to this point this yr.

China unofficially suspended QDII in 2015 when gyrations in Chinese inventory and forex markets prompted capital flight. The programme was revived three years later after Chinese equities steadied, whereas the yuan gained sharply in opposition to the US greenback.

The transfer by StanChart additionally comes because the Asia-focused financial institution’s CEO Bill Winters final week talked up China alternatives, with wealth administration seen as a most important progress plank and its cross-border providers giving it an edge over home friends.

“I don’t see any need for or any likelihood of material restrictions on capital flows for Chinese savers or corporations,” Winters stated on the financial institution’s earnings name on Friday.

“I think there have already been some increased restrictions on offshore flows,” he stated when requested in regards to the impression of potential tightening measures from Beijing on its cross-border enterprise.

Since 2006, StanChart has been awarded a complete QDII quota of US$2.8 billion, the third largest amongst international banks solely behind HSBC’s US$4.73 billion and Citigroup’s US$3.5 billion, based on the most recent information from Safe.

The regulator and the banks haven’t disclosed how a lot of the quotas have been utilised. REUTERS