Mainland regulators have expanded a program that allows local financial institutions to use offshore- raised yuan for onshore investments.
The amended rules for the Renminbi Qualified Foreign Institutional Investors program were unveiled by the China Securities Regulatory Commission yesterday.
The expanded scheme is expected to boost yuan demand and confidence in mainland stock markets.
The new rules will allow more types of market participant, including Hong Kong subsidiaries of mainland commercial banks and insurance firms, to enter the domestic equity scene. Locally based financial institutions can also gain access.
Participants will now be able to invest in stock- index futures, the CSRC said. RQFII funds can also now take part in mainland initial public offerings, convertible bond sales and share placements.
In addition, all investment restrictions on RQFII funds will be lifted. Currently, a maximum of 20 percent of the assets of each fund is allowed to be invested in mainland stocks, with the remaining 80 percent required to be spent on domestic bonds.
Bank of China (Hong Kong) (2388) vice chairman and chief executive He Guangbei believes RQFII vehicles are unlikely to invest all their funds on mainland A shares due to market volatility fears.
And Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming said: "We see strong demand on yuan investment products both in retail and institution sides.
"But the feedback of old RQFII products has been lukewarm due to the investment restrictions."
But with the lifting of the restrictions, investors are likely to welcome such products, Wong said.
Financial Secretary John Tsang Chun-wah said the expanded program will help diversify yuan investment products in the territory, and speed up the internationalization of the currency.
The total quota under RQFII schemes now stands at 270 billion yuan (HK$336.4 billion), with 70 billion yuan so far granted to qualified institutions.