BlackRock Given The Right To Invest In Chinese Capital Markets

BlackRock Given The Right To Invest In Chinese Capital Markets
By BlackRock [Public domain], via Wikimedia Commons

One of the world’s largest asset managers, big enough that it could end up being designated as a SIFI along with major US banks, BlackRock, Inc. (NYSE:BLK) has now been given direct access to one of the world’s most important markets. BlackRock Asset Management North Asia Limited was given a Renminbi Qualified Foreign Institutional Investor (RQFII) license that gives it the right to make investment in China’s capital markets.

“China is an important investment destination for our clients globally as it undergoes a pivotal transformation, and gradually internationalizes its capital markets,” said BlackRock, Inc. (NYSE:BLK) senior manager Marc Desmidt, reports Simon Jessop for Reuters.

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BlackRock, Inc. (NYSE:BLK) still has to apply for the a quota that will determine the maximum amount that it can invest, and based on how the process has gone up until now it is likely to be a conservative amount. China is liberalizing its markets, but slowly. Ashmore, an EM focused fund, was granted a RQFII earlier this year, but the licenses aren’t being handed out easily.

While sentiment on China has turned somewhat negative recently, it’s impossible to ignore a market with hundreds of millions of people in the middle class, and being one of the few funds that can invest directly will be a big advantage for BlackRock, Inc. (NYSE:BLK) as it tries to bring in new investors.

Other liberalization programs also moving slowly

The RQFII program isn’t the only way that China is trying to open up its financial markets. It also gave six hedge funds the right to raise yuan for international investments under the Qualified Domestic Limited Partner (QDLP) program last December. But just like the RQFII, the total size of these investments is limited so that China can judge the impact that they have on the rest of the economy before giving foreign funds a freer hand. The possibility that a lot of additional turbulence could be the catalyst for something much worse is a risk that the Chinese government isn’t likely to take.

China has a long-term goal of integrating its financial markets with the rest of the world, but over the next few years it has to manage falling growth and after years of loose credit. Even if the Chinese government can avoid a hard landing long enough for internal consumption to become a new engine for growth, financial liberalization will likely proceed slowly along the way.

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