BEIJING, July 20 -- China may allow qualified foreign institutional investors to use as much as 10 percent of their investment quotas to trade stock-index futures, the China Securities Journal reported, citing an unidentified person.
The equity-market reforms represent efforts by the government to make more investment options available to foreign investors, who have limited access to the world's third-biggest stock market by value. Trading in the futures would give the investors a hedging tool in China and allow them to more effectively compete with local fund managers as the nation prepares to open the market to foreign institutions.
"The significance lies in the fact the index-futures market will see foreign capital inflows and the market will become more international," said Jiao Hongmei, an analyst at Citic Newedge Futures Co in Shanghai. "Still, the initial participation will be limited given the 10 percent ceiling."
China started futures trading in April, allowing domestic investors to profit from declines in equities for the first time. The CSI 300 Index, which tracks the 300 most liquid stocks on the Shanghai and Shenzhen stock exchanges, is the underlying index for the futures.
The nation's stocks have plunged this year on concern measures by the government to control real-estate speculation and rising consumer prices will damp economic growth. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, and the CSI 300 Index have both slid 25 percent in 2010, the worst performance among benchmark Asian gauges.
China's securities regulator allows selected overseas investors to invest in the nation's stock markets under the qualified foreign institutional investor, or QFII, program.
Currently, 89 qualified overseas institutional investors received $17.72 billion in quotas as of the end of June, the China Securities Journal reported.
The US Treasury Department announced that qualified foreign institutional investors, or QFIIs, would be allowed to trade equity futures in a statement on May 25 at the end of the US-China Strategic & Economic Dialogue in Beijing.
Futures, or agreements to buy or sell the CSI 300 Index at a preset value, began trading on the China Financial Futures Exchange in Shanghai on April 16, while margin trading and short selling was introduced March 31.