Chinese Investors Seek Foreign Assets for Portfolio Diversification amid Domestic Market Turbulence

Disillusioned by a weak domestic stock market, geopolitical risks, and a falling currency, Chinese investors are pouring money into investment products that include exposure to foreign assets, which will help diversify their portfolios.

Retail money has poured into exchange traded funds (ETFs) and mutual funds issued under the Qualified Domestic Institutional Investor (QDII) programme, one of the few channels through which Chinese money can be invested abroad, leaving fund managers scrambling for more quotas under the strictly managed scheme.

Those investing in QDII products are no longer content to stay close to home in Hong Kong equities, but are looking for funds that provide access to US, Japanese, and even emerging markets such as Vietnam and India as the Chinese economy struggles, according to analysts.

According to Morningstar data, a record 38 QDII funds were launched this year through August 17, outpacing the 31 funds launched in 2022.

"Demand for US stocks has emerged since late last year and has grown this year as a result of the lucrative returns." "The Nasdaq ETF performed exceptionally well," said Ivan Shi, research director at Shanghai-based fund consultancy Z-Ben Advisors.

The total QDII quota of approximately $165.5 billion is nearly depleted, according to fund managers, and there is demand for more as domestic investors seek alternatives to falling stock and property values at home.