Foreign institutional investors - who were eager to qualify to invest in the mainland's securities market - are not having as much as an initial impact as anticipated, or hoped.

With the foreign exchange authorities' latest approval of Goldman Sachs as a qualified foreign institutional investor (QFII), the overall quota for the five licensed QFIIs in China's securities market has reached US$775 million.

The approvals, granted swiftly by the State Administration of Foreign Exchange (SAFE) over the past two months, saw UBS Limited and Morgan Stanley International taking the biggest share - US$300 million a piece. Citigroup Global Markets has a quota of US$75 million while Nomura and Goldman Sachs and Nomura Securities are each eligible to invest up to US$50 million.

The QFIIs, however, are unlikely to use up all their investment quotas immediately, analysts said, as the pace and volume of investments are directly related to the performance of the securities market as well as the short- to long-term macroeconomic outlook.

A few of the pioneers have made initial forays into the A-share and bond markets which had earlier been inaccessible to foreigners.

UBS made the first QFII buy on July 9, ordering shares in telecom-gear maker ZTE Corp, Baoshan Iron & Steel, Shanghai Port Container and Sinotrans Air, all of which are regarded as blue-chips.

Its high-profile maiden-buy ceremony, however, was in sharp contrast to Citigroup, which made its first low-key investments a week later, but did not clarify which stocks it bought.

Statistics showed later that both investment banks had also subscribed to convertible bonds of the State Power Development Co Ltd, a Shanghai-listed subsidiary of the State Power Co.

UBS purchased about 4.8 million yuan (US$578,000) and Citigroup got 1 million yuan (US$120,000) worth of the bonds.

Nicole Yuen, head of China equities at UBS Warburg, said the bank would mainly target bigger listed companies and those that have adopted standard corporate governance or have good investor relations.

Liquidity is also an important criteria for international funds when picking stocks - the QFIIs' preference is similar to domestic institutions that seek long-term and value-oriented investments, said an official with China Merchants Antai Fund Management.

"I guess UBS and Citigroup have entered the market largely on an optimistic view of China's development potential," he said.

The broad aim of allowing QFIIs is to intensity value-oriented investment but they are not exactly breaking new ground with more and more domestic institutions already moving in the same direction from a year ago, said Li Jiong, a manager at the Asset Management Department of CITIC Securities.

But some analysts noted that speculation is still rife, though the situation is gradually changing.

Allowing QFIIs is a transitional measure to open up China's capital market while the renminbi is still not fully convertible under the capital account - with the hope of fresh fund infusion in domestic bourses.

But how much funds will flow in still depends on the performance of the market and quality of the listed companies.

"The investment scale of the QFIIs is still rather limited now, so their influence on the market is also limited," said Li.

UBS' first buys propped up stock indices in the following week, but it did not last long.

QFIIs normally increases investment as the local authorities gradually loosen foreign exchange control, said Yang Kai, chief representative in Beijing of UBS Warburg.

But once they are in the market, they will be more like local institutions and will help attract more local funds as well, he said.

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