With so many major companies listing on the home market, investors are going for the blue chips.

The ICBC, the country's largest bank, by issuing 13 billion A shares worth US$19.1 billion, replaced Sinopec as the biggest blue chip on the Shanghai exchange. In the world's largest IPO, the bank attracted many institutional investors seeking long-term investment in the A-share market and wanting to share the fruit of the country's dramatic growth.

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"With the flourishing supply of blue chips, the market will lead investors to cultivate the concept of long-term investment based on the prospect of steady growth instead of short-time speculation," Zhao Jianxin, analyst with China Merchants Securities, says.

Foreign A-share investment

On December 4, the day's overall investment in the Shanghai and Shenzhen stock exchange s totaled 77 million yuan (US$9.8 million), according to China Securities Depository and Clearing Corporation statistics.

The listed companies' third quarter financial reports show that among the top 10 investors in tradable shares, qualified foreign institutional investors, the QFIIs, ranked second behind fund management companies. The QFIIs invested 24 billion yuan (US$3 billion) in the A-share market, up 220 per cent year-on-year .

"Over the next few years, the China Securities Regulatory Commission (CSRC) will continue to gradually increase the number of QFIIs and the quota they are able to invest in the stock market," Shang Fulin, chairman of CSRC said in a forum held in Beijing December 2. He emphasized that the flow of more QFII funds into the A-share market is part of the government's long-term strategy to speed up the opening of the financial market to foreign investors.

In 2006, the CSRC approved 18 new QFIIs, with the number rapidly increasing in the second half of the year. Meanwhile, the combined QFII investment quotas surpassed US$8.84 billion by December 5.

As one of the QFIIs, the Morgan Stanley China A-Share Fund, started in September, is proving the popularity of QFIIs. The fund's IPO sold out in one day before it started trading on the New York Stock Exchange September 28 .

The fund is a closed-end, non-diversified type sold only to individual investors in the United States.

"China's securities regulator is also happy to see this type of fund as it has a long-term investment strategy in China's A-share market," Tony Archer, Morgan Stanley Investment Management's Asia-Pacific head says.

A QFII, like a pension fund or a social security fund, has a longer investment/return term in the stock market, usually three to five years. Also, QFII managers tend to prefer investing in blue chips as they usually reflect the country's economic growth.

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