There was speculation that the QFIIs would favor the blue chips once they have been granted approval to invest.

"If everybody believes these blue chips can make him money and rushes in to buy, do you believe that QFIIs will keep their interest in them," asked Wu kan, head of the investment consulting department of Shanghai Securities Consulting Co Ltd.

Indeed, these blue-chip stocks have already become expensive to QFIIs as share prices in the auto and steelmakers have soared more than 50 percent from the beginning of the year, for example.

The high prices would cause the foreign investors to switch to stocks with low price-to-earnings ratio, Wu added.

"I suspect that they (QFIIs) would move into a sector that still has potential to make attractive returns. The companies which are potential takeover targets of foreign investors are options for the QFIIs," he added.

However, Industrial Securities Co Ltd analyst Wu Qihua said QFIIs would target stocks in the media, port and tourism sectors because foreigners are still not allowed to establish their own firms in these areas.

"Besides, I think they also favor companies which have built up a strong brandname in the domestic market," he added.

Over the weekend, the Chinese securities regulator approved two more firms, Morgan Stanley Co International Ltd and Citigroup Global Transaction Services, to invest in China's local-currency Class-A share market, bringing the total to four.

Last Friday, UBS AG and Japan's Nomura Holdings Inc received approval from the State Administration of Foreign Exchange to invest initially US$300 million and US$50 million respectively in the two A share markets in Shanghai and Shenzhen.

UBS AG yesterday appointed Shenying & Wanguo Securities Co Ltd as its first local broker to help the Swiss bank buy into A shares.

Shenyin & Wanguo Securities, one of the biggest brokerage houses in China, operates a nationwide network of 109 outlets.

(eastday.com June 10, 2003)