Global capital markets, shaken up by US subprime mortgage woes, are dampening China's demand for overseas investment through QDII products.

China Construction Bank, the only institution that regularly reveals the performance of their products developed under the QDII (qualified domestic institutional investors) scheme, said earlier that as of last Friday the net asset value of a newly launched product lost a total of 5.91 percent during the past three weeks.

In a notice posted on its website, China Construction Bank, one of the Big Four Chinese lenders, said that the per unit net asset value for its Haiying No 1 fund stood at 0.9534 yuan on August 14, down from 1 yuan at issuance. It attributed the decline mainly to the 58 percent investment in the Pacific High Dividend Equity Fund, which has slumped.

The bank reminded clients of the risks associated with bearish global equity markets. Other banks declined to comment on the QDII issue.

Analysts said that nearly all QDII products that invest in overseas shares managed by various qualified institutions have suffered losses because of the worldwide stock market slump.

This has dealt a heavy blow to investors. But there are those who hold the view that the past week's share price slide has provided an opportunity for QDII funds to buy low.

Nevertheless, the poor performance of QDII stock funds has generally made it more difficult for the managing institutions to attract new investments, at least for the time being. The prospect of further renminbi appreciation has made QDII funds look even less attractive.

"Many people, who were excited when they had the new channel to invest overseas, are severely upset by the recent setback," said He Rongtian, an analyst with Guangfa Securities.

While global markets have suffered, China's booming stock market has been little affected by the global credit squeeze. Some analysts believe that given Chinese companies' strong earnings in the first half of the year, the index could climb in coming weeks to a new resistance level of 5000 points.

Zhou Liang, research head of Lipper China, a leading fund information provider, said the products that have overseas investments are surely affected in a negative way.

In May, the government allowed banks to invest in overseas shares, extending from fixed-income and money market products.

A number of domestic banks and their overseas rivals, including HSBC, Citibank and Standard Chartered Bank, have churned out new products that invest in overseas stock markets.

"The rise in net asset values (of the QDII stock funds) generated in June and July have been completely wiped out in the subprime crisis," Zhou added.

But some analysts see a brighter side to the issue. Wu Feng, an analyst at TX Investment Consulting, said: "The global market is expected to continue the upward trend, and it is high time for institutional investors to increase their holdings of overseas stocks."

(China Daily August 22, 2007)