SFC explains features and risks inherent in RQFII funds
10 Jan 2012
The Securities and Futures Commission (SFC) today publishes a list of frequently asked questions on its InvestEd website (www.InvestEd.hk) to help investors understand the key features and risks specific to a new class of investment products, i.e. the Renminbi Qualified Foreign Institutional Investor (RQFII) funds (Note 1), which directly invest in renminbi in the Mainland bond and equity markets.
An RQFII fund comprises at least 80% renminbi debt instruments issued in mainland China and an optional not-more-than 20% of A-shares or other permissible investments in that market. Subscriptions and redemptions of fund units are settled in renminbi.
“RQFII funds offer one of the most direct channels for local investors to participate in the Mainland bond and stock markets,” said Mrs Alexa Lam, the SFC’s Deputy Chief Executive Officer and Executive Director of Policy, China and Investment Products. “Before investing in this new class of products, investors should carefully read the offering document including the product key facts statement to fully understand how a particular RQFII fund works and the associated risks.”
Below are a number of key risks specific to investing in an RQFII fund:
- Single country risk: An RQFII fund invests in a single country, namely, mainland China, thus there is a concentration risk.
- Currency exposure: Investors converting a local currency (HK dollar) to take up units of an RQFII fund are exposed to fluctuations in the renminbi exchange rate, as well as exposure to China’s exchange controls and restrictions.
- Risk relating to bonds: An RQFII fund is subject to risks pertaining to fixed-income instruments, including interest rate risk, issuer credit risk and liquidity risk.
As with all SFC-authorized investment products, features and risks of RQFII funds are set out in their offering documents. Investors are reminded to carefully read such documents and to consult their intermediaries when in doubt.
1. RQFII is granted to qualified Mainland fund managers and securities companies to allow their Hong Kong subsidiaries to channel renminbi raised in Hong Kong to invest directly in the Mainland bond and equity markets (including the inter-bank bond market and the exchange-traded bond market). Please see the SFC’s press release dated 16 December 2011.
Page last updated : 1 Aug 2012