By Selena Li

HONG KONG (Reuters) -Commonplace Chartered has suspended new investments by its shoppers in China into offshore merchandise through a quota-based channel, the financial institution stated, amid a surge in demand for abroad investments resulting from weak spot within the native market and forex.

The London-headquartered financial institution, in an announcement to Reuters, cited “business causes” as its clarification for the suspension of latest investments underneath 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 belongings offshore.

The QDII programme, first launched in 2006, stays the biggest outbound funding channel for Chinese language buyers. The scheme is capped by a quota set by the State Administration of Overseas Trade (SAFE).

The programme helps Chinese language wealth and company shoppers put money into offshore funds, bonds and different structured merchandise.

In a shopper be aware issued by StanChart final week, which was reviewed by Reuters, the financial institution stated it will not take new subscriptions into offshore-domiciled funds offered through the QDII programme with impact from final Thursday.

“Commonplace Chartered (OTC:) China has suspended the subscription of related merchandise for business causes,” the financial institution stated in response to Reuters queries.

Home buyers’ urge for food for abroad belongings has been rising strongly since late 2022, as China’s inventory market efficiency lagged the U.S. and different main offshore markets.

China’s blue-chip CSI300 index hit five-year lows this month, and is down 18% in a few 12 months, pummelled by an unprecedented debt disaster within the property sector and a scarcity of large-scale authorities stimulus.

“Primarily based on the info the chance is much higher that it was a business resolution based mostly on quota limitations moderately than a stab at midnight that steering from Beijing pressured the difficulty,” 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 previous a number of months and with that QDII quota capability would have been reached.”

CAPITAL OUTFLOWS

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

Beijing has unveiled a slew of market help 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 has confronted renewed depreciation strain in 2024, weighed down by the greenback’s resurgence in gentle of market bets the Federal Reserve may wait longer than beforehand anticipated to start chopping charges.

The yuan has misplaced about 1.4% towards the greenback to date this 12 months.

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

The transfer by StanChart additionally comes because the Asia-focused financial institution’s CEO Invoice 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 do not see any want for or any chance of fabric restrictions on capital flows for Chinese language savers or firms,” Winters stated on the financial institution’s earnings name on Friday.

“I feel there have already been some elevated restrictions on offshore flows,” he stated when requested concerning the influence of potential tightening measures from Beijing on its cross-border enterprise.

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

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