Chinese language mutual funds rise, new challenge tops 2.5 trillion yuan
BEIJING – Chinese mutual funds have ripped this year, a sign of changed investor behavior as local capital markets mature.
According to data from Wind’s financial information database, more than 1,100 new funds were launched this year, with issuance volumes exceeding 2.5 trillion yuan ($ 373.1 billion) on Friday, the last trading day in October.
The figure of 2.5352 trillion yuan is an all-time high – far more than the 1.4 trillion yuan and 1,036 funds for the entire past year, Wind said.
China’s mutual fund market (2001-2020)
Note: The figures for 2020 refer to the year until the end of October. Source: wind.
Analysts pointed to several reasons for the surge in investor demand.
Lower interest rates due to the easing of global monetary policy in the wake of the coronavirus pandemic have unlocked capital and made stocks relatively more attractive. Changes in Chinese regulation and investor preferences in the country have also helped fuel the recent growth in Chinese mutual funds.
Reaching 2.5 trillion yuan is a very important step from a historical perspective, even if the number is not that high in the context of the overall Chinese market, said Ji Shengling, an analyst at China Asset Management.
With recent new initiatives like the launch of the STAR board of directors last year and its registry-based IPO system, there are “many, many green lights” from regulators for greater stock market development of its Mandarin remarks, according to a CNBC translation.
China has the second largest stock and bond markets in the world, but most Chinese have preferred to save their profits or buy real estate. Speculators have tended to boost stock performance and nicknamed mainland markets “casino” in recent years.
New types of investor behavior
Cliff Sheng, partner who leads McKinsey’s capital markets services line in greater China, has made a “mega-shift” in funding from unregulated, shadow banking-focused wealth management products to capital markets.
Sheng added that after years of efforts to improve consumer investor education, institution-managed products have increased their penetration.
(It is) a clear opportunity for most mutual fund companies and managers, especially those with (a) good track records, strong distribution networks, and established brand names.
Partner who leads McKinsey’s capital markets services line in Greater China
Foreign fund managers such as Fidelity International and Vanguard have stepped up their efforts to capitalize on this trend. This is supported by support from regulators and working with local financial and technology institutions such as Alibaba subsidiary Ant Group.
Ant became a pioneer in the Chinese wealth management industry with its “Yu’e bao” money market fund linked to mobile payments. The product managed around 1.7 trillion yuan in assets under management at its peak in early 2018 before losing its luster with the rise of other funds and tighter regulation.
Trends in China can fade quickly. A number of mutual funds have emerged in the past few years, many claiming to be powered by cutting edge technology, but many have collapsed under the influence of regulators.
Ant Group’s plans for a record-breaking double listing in Hong Kong and Shanghai on Thursday were suspended two days before debut. The Shanghai Stock Exchange announced it had suspended its IPO after central government regulators met with Ant controller Jack Ma and key executives.
Funding for fintech companies based in Asia continued to decline 12% in the third quarter from the previous three months, and 60% of top deals were in the US. That’s based on data released by CB Insights this week.
“The Chinese market is maturing, as demonstrated by the recent IPOs of Ant Group and Lufax,” said Conor Witt, an analyst at CB Insights, in an email. “The decline in funding could also represent a cyclical retreat after significant funding growth in 2018. There are still great opportunities in the Chinese market, but the barriers to entry are increasing as the later players have increased their market share in recent years.”
Short-term market risks
Similar caution should be exercised with the recent onslaught of mutual funds.
“(It is) a clear opportunity for most mutual fund companies and managers, especially those with (a) good track records, strong distribution networks and established brand names,” said Sheng. However, he said the funds may need to adopt new management models to maintain levels of assets under management.
Mainland stocks are among the best in the world this year. The Shanghai Composite is up 7.3% so far this year, and the Shenzhen component is up more than 30%, while the S&P 500 is up nearly 4.3% and the Japanese Nikkei 225 is up half a percent holds on.
According to Ernst and Young, Shanghai led the global markets with the number of IPOs in the first three quarters of the year.
A woman at the securities trading post in Shenyang, Liaoning Province of China.
In China in particular, a number of industry developments this year from electric vehicles to healthcare have given investors a number of attractive reasons to buy, Ji said. The rapid surge in stock market growth has increased risk in the short term, and he expects some decline.
Still, Ji said he was confident that more funds would become available in the longer term.
Details of the fourteenth five-year plan suggest that China will continue to focus more on technology, health care and other recently set issues, Ji said.
“China’s investment trend over the next 10 years will not change much,” he noted.