The government has so far opened the door for mainland commercial banks to invest in Hong Kong, the UK, Singapore and Japan. The US and Germany are next.

While enthusiasm for the funds is waning among local investors, some are taking a punt on the long-term potential of QDII products.

That first round of products is mainly from Hong Kong and other Asia-Pacific stock markets.

"The new QDII products will be more widely distributed in places such as Europe," Zhao said.

Apart from geography, new QDII products should also span different types of markets, according to Ulrich.

"For example, while global stock markets are struggling, fund managers can transfer funds from stocks to commodities such as corn, soybean, crude oil, gold and other precious metals, which have a high level of appreciation and resilience," Ulrich said.

Some global banks are already investing in lower-risk industries. Bank of East Asia, Standard Chartered Bank, HSBC and Deutsche Bank all released new QDII products recently. Most will invest in bonds, agriculture and energy.

The exchange rate also affects QDII product yield and the appreciating yuan is increasing investor risk.

"QDII products can be designed to combine, for example, gold investment and foreign exchange. Investors could also use options and other derivatives to avoid exchange rate risk," Ulrich said.

(China Daily March 19, 2008)