Aberdeen awarded QFII licence, says fixed income will be focus once quota is confirmed

Singapore, 12 August 2010 – Aberdeen Asset Management Asia Limited (‘Aberdeen’) has confirmed it has been awarded a QFII licence by the China Securities Regulatory Commission to invest in domestic Chinese securities. The company is now awaiting a separate foreign exchange quota from SAFE, up to a possible US$200m.

The investment manager, although known chiefly for its expertise in Asian equities, had sought permission for the QFII licence mainly with its growing fixed income franchise in mind. Aberdeen’s Asian Fixed Income team, based in Singapore, is responsible for over US$5bn on behalf of both regional and global investors.

It notes that while China’s currency markets are accessible to global investors through offshore non-deliverable currency forwards, this is not always the best way of taking advantage of the investment opportunities over the longer term. Having a quota to invest onshore clearly allows the investor to take a direct view on the underlying bonds and equities themselves and not just the Yuan.

In a regional bond market which can exceed 10 countries (excluding Japan), China has easily the largest domestic market and now comprises almost 15% of the widely-used Iboxx Asia ex-Japan local currency index. Aberdeen sees China’s index share growing substantially in the years ahead as, in addition to government issuance, companies are being encouraged to diversify their borrowing away from bank debt.

Aberdeen is more cautious about the use of QFII for regional equities, where its funds under management amount to US$52.1bn. Aside from a handful of dual listed H and mainland A share stocks, where A shares may be cheaper, it does not see immediate buying opportunities because of longstanding governance and quality concerns. Thus it will only use any quota for specialist Chinese mandates and their focus won’t change.

It has no immediate plans to launch new funds as a result of being granted this licence.

Anthony Michael, Head of Asia Pacific Fixed Income at Aberdeen comments:

“China has seen substantial growth in its onshore government and corporate bond markets in recent years, growth we expect will continue for some time to come."

“Overall we expect the development of China’s financial markets to provide many opportunities to diversify our investment strategies across the region for many years to come. Not just to be long the Chinese currency, but also to achieve diversified credit and interest rate strategies for our clients as well.”