Qatar Recycles Its China Earnings

As an exercise in financial recycling, it is intriguing. Qatar is applying for a license to invest $5 billion of its earnings from selling liquefied gas to China in Chinese equities, including initial public offerings. Beijing likes the idea, promising to fast track the application of Qatar’s  sovereign wealth fund to be a qualified foreign institutional investor (QFII), despite the fact that such investors are currently subject to an investment quota of $1 billion.

That cap is anyway expected to be raised as part of Beijing’s step-by-step opening of the capital account. Some 37 QFIIs have applications pending to increase their quotas by an average of $340 million, following a increase in the aggregate quota to $80 billion from $50 billion. The stake that QFIIs could hold in a Chinese listed company collectively is also expected to be raised to 30% from 20%. As of mid-April, China had issued 170 QFII licences with 127 of them granted a combined quota of $25.2 billion. The requested increases in quota plus Qatar’s ask–which would make it the biggest foreign investor in China’s stock and bond markets–could potentially inject more than $17 billion into China’s sagging equity and debt markets. Do we hear the sound of fools rushing in?

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