Chinese shares rallied to a six-month high on Monday, amid speculation that a fresh round of financial reforms could boost cross-border investment.

The CSI 300 – an index of Shanghai and Shenzhen listed shares – rose 3.8 per cent, to close at its highest level since mid-June.

Financial stocks led the gains, with China Minsheng Bank surging 6.7 per cent, Citic Securities jumping 7 per cent, and Ping An Insurance increasing 5.5 per cent.

Analysts said the sharp rise was sparked in part by offhand remarks given by the head of China’s market regulator, and by a statement from the central bank in which it flagged potential reforms to the way domestic investors access foreign markets.

Guo Shuqing, China Securities Regulatory Commission chair, told an audience at the Asian Financial Forum in Hong Kong on Monday that the quota for offshore funds to invest in mainland markets could be increased “10 times”.

Chinese offshore funds can be invested onshore through the renminbi qualified investors scheme (RQFII). Mr Guo also said the CSRC would “definitely consider” allowing non-mainland institutions to access the RQFII scheme.

Access for overseas investors into Chinese stocks is limited under the country’s qualified foreign institutional investor (QFII) scheme. The CSRC relaxed the restrictions for those seeking an investment licence last summer in a bid to boost international participation in the domestic equity market.

However, both the current quotas have yet to be fully utilised, suggesting that demand rather than availability has been holding back offshore portfolio investment into China.

“Obviously it’s positive for market sentiment,” said Steven Sun, China equity strategist at HSBC. However, “excitement might be shortlived until you see some concrete measures”, he added.

Separately, the People’s Bank of China said over the weekend that it was planning to trial new rules for its qualified domestic institutional investor (QDII) scheme, under which Chinese savers can make overseas investments – essentially QFII in reverse.

“We will be active in our preparatory efforts for the trial of the qualified domestic institutional investor programme QDII2,” it said in a lengthy statement about its priorities for 2013.

The central bank did not elaborate on what the programme might involve, but state-run financial newspapers speculated that it might open a channel for individual investors to invest directly in capital markets overseas.

Currently, investors looking to buy foreign stocks or bonds must channel their money through funds managed by domestic brokerages and asset companies. These funds have consistently struggled to attract retail interest.

The Economic Observer, a leading newspaper, said it was the first time that the PBoC had used the term “QDII2”.

An expansion of the QDII programme, generating more financial outflows from China, is seen as an important step towards the eventual opening of the country’s capital account.

Monday’s rally puts the Chinese market back on its path of rapid gains, started at the beginning of December. Since closing at a three-year low on December 3 , the CSI 300 has surged 22 per cent.

Additional reporting by Paul J Davies in Hong Kong

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