FOREIGN investors may be permitted to invest as much as 10 percent of their investment quotas in China's index futures market for hedging purposes.

China will limit funds under the Qualified Foreign Institutional Investor program, which allows foreign investors to trade yuan-denominated A shares on the Chinese mainland, to invest as much as 10 percent of their investment quotas in index futures, China Securities Journal quoted an unnamed source as saying yesterday.

Their trades must be conducted on hedging purposes and closely linked to the spot market, and the securities regulator is expected to seek public opinion on the issue soon, the source said.

In May, China reached agreements at the second meeting of the United States-China Strategic & Economic Dialogue to allow foreign investors under the QFII scheme to trade stock index futures.

A total of 89 firms got QFII quotas exceeding US$17.72 billion by the end of June, according to the State Administration of Foreign Exchange.

The 10 percent limit is expected to channel 12 billion yuan (US$1.77 billion) into the index futures market and enable QFII investors to hedge risks and compete more effectively with local asset mangers.

The index futures were launched on April 16. Investors bet on the direction of domestic stock markets based on the CSI 300 index.