Swiss-based bank UBS has invested close to 70 per cent of its US$800 million Qualified Foreign Institutional Investor (QFII) quota in China's A-share market, and is set to invest more due to overwhelming demand from its clients.

The company's announcement yesterday in Shanghai represents overseas investors' interest in the yuan-denominated A-share market, which is undergoing reform.

"We hope to get as much QFII quota as we can, since we have an overwhelming demand from our clients (for A-share investment)," said Yuan Shuqin, head of China Equities at UBS.

The QFII scheme, introduced by the China Securities Regulatory Commission (CSRC) in November 2002, allows qualified foreign investors to participate in China's domestic securities market.

UBS was the first QFII approved by the CSRC with an initial quota of US$300 million.

The bank currently has the largest investment quota under the QFII scheme, followed by Nomura, Citigroup, Morgan Stanley and Goldman Saches.

As of the end of last year, the CSRC approved 34 QFIIs with a total quota of US$5.6 billion.

"Though the A-share market has been in decline in recent years, UBS's investment in the market has been sustained at a high level," said Yuan. "We do not care so much about short-time market fluctuation as the future prospects of the market."

The share reform and a series of other reform policies introduced in the past 12 months made 2005 "a year worth being excited about," said Yuan.

In a latest development at the end of 2005, the government introduced a scheme to let foreign investors make strategic investments in the shares of select listed companies.

These foreign companies could also gain a stake in the new A-shares that are to be issued after the freeze on initial public offerings (IPO) is lifted.

To qualify, a foreign investor is required to hold at least 10 per cent of a publicly traded firm, subject to a three-year lock-up period. The firm is not allowed to trade on the secondary market.

"The scheme provides an alternative investment channel for QFIIs like us whose client demand exceeds the quota allowed. It is like a year-end gift for us," said Yuan.

In a bid to put an end to a massive hang-over of State-held shares widely viewed as the main reason for the market's poor performance the government suspended IPOs on both the Shanghai and Shenzhen bourses last May. It also ordered listed companies to float their State-owned shares in orderly batches.

More than 400 companies, accounting for about 25 per cent of the total market capitalization, implemented the reform programme at the end of last year.

UBS is a major investor in some 25 A-shares including Baoshan Iron & Steel, China Yangtze Power and Shanghai International Airport, and is also a major investor in 10 convertible bonds.

In its most active days, the A-shares traded by UBS accounted for as much as 7 per cent of the total turnover on the A-share market.

Source: China Daily