Quality Demand Is It?

QDII - Quality demand?

China's largest fund house - China Asset Management - raised US$4 billion within a day under the Qualified Domestic Institutional Investor scheme. Funds approved under the QDII can invest in stock markets outside China. The aim is to allow the vast amount of liquidity in China to flow overseas and ease the pressure on the yuan as well as the high asset prices on the mainland. Singapore is expected to be a beneficiary of the outflow of the Red Yuan.

Readers who frequent Shareinvestor.com might have heard Oldman aka Michael Leong say that, ultimately, the price of each stock simply follows the law of demand and supply. Over the past two days, the Redchips have collectively powered the STI to a new high. SESDAQ has been left behind in the recovery while STI is back to making new highs. If you had gone to bed in Aug and woke up in Oct, you probably would not be able to tell the carnage and panic from the US subprime 'scare'.

According to ML's conservative estimates, up to US$3.3 billion per month on average over the next 15 months may potentially flow into the HK stock market. To give you an idea, that mount has the same effect as SPH being swallowed up in 6 weeks. That is how much buying power there is.

Is it our business?

Be afraid, be very afraid. There's more to come. Beijing has just launched the US$200 billion China Investment Corp over the weekend that would unleash the largest fund in history onto
the world's financial markets. Just look at the Shanghai Index. That is the buying power of 1.3 billion Chinese. CIC is a soveriegn fund, just like our GIC.

The QDII effect on STI is immense. MYOB expects the STI to be more decoupled from the US
markets, and track the Chinese market more closely. Just look at Hang Seng over the past few months.

Stay tuned.

MYOB