China scrapped a ceiling on investments by sovereign wealth funds and central banks in its capital markets, part of efforts by the government to encourage long-term foreign ownership and shore up slumping equities.

SWFs, central banks and monetary authorities can now exceed the $1 billion limit that still applies to other qualified foreign institutional investors, according to revised regulations posted today on the State Administration of Foreign Exchange's website.

The Shanghai Composite Index (SHCOMP) jumped the most since October 2009 today after the head of the Hong Kong Monetary Authority said yesterday China may relax or abolish a rule that requires Renminbi Qualified Foreign Institutional Investors to keep most of their funds in bonds. The China Securities Regulatory Commission has cut trading fees, pushed companies to increase dividends and allowed trust companies to buy equities since Guo Shuqing took over as chairman last year. Introducing more long-term funds from abroad will help improve market confidence, promote stable growth in capital markets and provide "robust" investment returns to domestic investors, the regulator said in May, a month after the government more than doubled the total quota for QFIIs to $80 billion from $30 billion.

The benchmark Shanghai Composite has lost 2.2 percent this year, while the MSCI China Index of mostly Hong Kong-traded shares, open to overseas investors, has gained 18 percent as U.S. bond purchases spurred foreign funds to pour money into emerging markets.

David Fuller's view This is another positive and important development for China's stock market. Today's additional 4.32% surge in the Shanghai A-Shares Index (weekly & daily) has pushed it above the September to November rally highs, providing further evidence that the 3.5-year bear market is over, even though is has yet to break back above the still declining 200-day MA.

We can expect some consolidation before long in line with the short-term overbought condition shown by Stochastics. However, this is normal and the recent sector leadership has been consistent with Fullermoney's recovery hypothesis for China's A-Shares. For instance, consider the early leadership of China's largest bank, Industrial & Commercial Bank of China (ICBC) (weekly & daily). See also the Shanghai Property Index (weekly & daily).

Now that we have clearer evidence that China's A-Share Index has finally bottomed, I would not be surprised if it is an outperformer over at least the lengthy medium term, given the interest in this market and its importance.

See also earlier comments on China, over the last four weeks, including this leader on 5th December: Chinese Stock Accounts Empty Before Rally on 'Capitulation' (subscription required for the full analysis).


Most importantly, see Eoin's recent, extensive reviews of Chinese instruments, including investment vehicles below.