Standard Chartered halts new China offshore investments amid capital outflow worries

Standard Chartered, a London-headquartered bank, has announced the suspension of new investments by its clients in China into offshore products via a quota-based channel, citing "commercial reasons."

This decision comes among a surge in demand for overseas investments driven by weaknesses in the local market and currency imbalance.

The bank did not provide detailed explanations for the suspension but acknowledged the move in the middle of Beijing's efforts to stem capital outflows amidst a weakening yuan and a slowing economy.

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China's principal overseas investment route is the qualified domestic institutional investor (QDII) programme, which was launched in 2006.

Though, StanChart's recent decision reflects challenges in meeting the demands of Chinese wealth and corporate clients seeking offshore investments. The suspension applies to new subscriptions into offshore-domiciled funds sold via the QDII program, effective from last Thursday, according to a client note issued by StanChart.

The decision follows a trend of growing appetite among domestic investors for overseas assets since late 2022, driven by China's underperforming stock market compared to major offshore markets like the US.

The CSI300 index, China's blue-chip index, has hit five-year lows and experienced an 18 per cent decline over the past year, attributed to various economic challenges including a debt crisis in the property sector. Experts suggest that quota limitations likely influenced StanChart's decision, given the absence of new quotas issued since 2021.

Economic and geopolitical concerns have spurred an exodus of investors from China, redirecting capital into alternative markets such as Japan. The benchmark Nikkei index has experienced significant gains in middle of this trend.

While Beijing has introduced market support measures since August, including reducing trading costs and prioritising equity fund launches, capital outflows continue to pose challenges. StanChart's move align with renewed depreciation pressure on the yuan in 2024, influenced by the dollar's resurgence.

StanChart's CEO Bill Winters has recently highlighted opportunities in China's wealth management sector, emphasising the bank's cross-border services as a competitive advantage over domestic peers.

In fact the concerns about potential tightening measures from Beijing, Winters remains optimistic about the bank's cross-border business. StanChart holds a QDII quota of $2.8 billion, making it the third-largest among foreign banks, behind HSBC and Citigroup.

However, neither the bank nor the regulator has disclosed the extent to which these quotas have been utilised.

(With inputs from Reuters)