China hints at move to rein in growth

On Tuesday, the H (or Hong Kong-listed) shares of China Aluminum Corporation of China (Chinalco), were about 42% cheaper than the corresponding A shares, while China Everbright Ltd, a Hong Kong-based investment holding company, trades at about a 23% discount in the Hong Kong market.

"QDII licensees are authorized to invest in most major markets, including the United States, United Kingdom, Germany, Japan, Hong Kong and Singapore. The Hong Kong market is however considered the prime beneficiary of QDII fund flows, considering the prevalence of China-concept funds and Chinese fund managers' pre-existing familiarity with the Hong Kong-listed stock universe," Ulrich said.

A spokeswoman of E Fund said it will sell funds focusing on equities in Asia, excluding Japan, with a launch date expected in December. China Merchants Fund is expected to launch a similar mutual fund product to invest in global stocks.

Loong said the QDII move should be positive on stock market sentiment in Hong Kong, particularly on the expectation that this would be the first of more such approvals.

"But the market should be alert to sudden changes in liquidity flows. Compared with 20 months ago, bank lending and hot money rather than the trade surplus are behind the groundswell of liquidity. This could change rather quickly," she said.

China's current account surplus may shrink to 5.5% of gross domestic product this year from 9.8% in 2008, and continue to decline to 4.1% in 2010, on strengthening demand for imports, according to the World Bank.

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