From: Financial Times By Geoff Dyer and Jamil Anderlini in Beijing

The long-awaited surge of retail money from China into international financial markets started to become a reality on Wednesday when a Chinese investment management company raised at least Rmb50bn ($6.6bn) for an overseas equity fund in a single day.

China Southern Fund Management opened subscriptions on Wednesday morning. Counting was continuing last night and one industry executive said the total would reach Rmb60bn.

The fund is the first in China to invest only in overseas equities and is part of a government scheme gradually to allow Chinese investors to put money into international markets.

Peter Alexander at Z-Ben Advisors, a fund management consultancy in Shanghai, said: “This is the first real sign of Chinese retail demand for foreign assets. But there will be much, much more to come.”

Some analysts have predicted that Chinese individuals, who have about $2,000bn in bank deposits, could invest hundreds of billions of dollars overseas over the next decade and the prospect of such inflows has boosted Hong Kong share prices

But until now there had been few signs of genuine demand from Chinese savers for overseas investment products, in part because the renminbi is expected to continue appreciating, which would reduce the returns.

The China Southern fund will invest in shares in 10 different countries, with the Hong Kong and US markets the first targets.

In a reflection of how much demand the company had expected, China Southern originally applied for a foreign exchange quota of Rmb15bn. “It exceeded our wildest expectations,” a senior fund official said of the subscriptions.

A large outflow of investment funds could endanger the remarkable rally in the mainland stock markets, which have seen share prices rise fivefold in two years and left many analysts warning of a bubble.

However, in a sign of continuing strong demand for Chinese stocks, Bank of Beijing said last night its initial public offering had attracted subscriptions of Rmb1,900bn, a record for a Chinese flotation. The offering was subscribed by 126 times.

Copyright Fund China 2009.

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