The China Banking Regulatory Commission's decision to widen the scope of investment under the Qualified Domestic Institutional Investors scheme has opened up a new channel for the orderly outflow of funds from the Mainland, Monetary Authority Chief Executive Joseph Yam says.

In his weekly column Viewpoint, Mr Yam said the move can further relax the controls on the capital account to facilitate the orderly outflow of funds. He said the outflow will be large enough to make an impact, relieving some of the pressures on the exchange rate and on monetary management.

Noting the arrangement will allow Mainlanders to invest some of their enormous savings overseas, Mr Yam said the risk-return profile of the Mainland equity market may now be too rich for the appetite of some investors.

"They will welcome the opportunity to invest in the Hong Kong equity market, whether in H-shares or in the whole spectrum of listed shares, despite the exchange-rate effect (which should be relatively small) they need to take into account." 

Market segregation

Mr Yam said the expansion will also help mitigate the current situation of market segregation, whereby, for an increasing number of shares, the supply and demand in the domestic Mainland market cannot interact with the international Hong Kong market. 

On the limitations arising from the QDII quota, he said they may be relaxed later to allow an orderly outflow of funds, for monetary and exchange rate management and other reasons.