finance

Inflows into Chinese mutual funds surge, with new issuance topping $370 billion


BEIJING — Chinese mutual funds have been on a tear this year, a sign of changing investor behavior as the local capital markets mature.

More than 1,100 new funds have launched this year, for a scale of issuance that’s topped 2.5 trillion yuan ($373.1 billion) as of Friday, the last trading day of October, according to data from the Wind financial information database.

The 2.5352 trillion yuan figure is a historic high — far more than the 1.4 trillion yuan and 1,036 funds for all of last year, according to Wind.

China’s mutual fund market (2001-2020)

Note: 2020 figures are for the year through the end of Oct. Source: Wind.

Analysts pointed to several reasons for the surge in investor demand.

Lower interest rates from global monetary policy easing in the wake of the coronavirus pandemic have freed up capital, and made stocks relatively more attractive. Changes in Chinese regulation and investor preferences in the country have also helped drive the latest growth in Chinese mutual funds.

Topping 2.5 trillion yuan is a very important step from a historical perspective, even if the figure isn’t that large in the context of China’s market overall, said Ji Shengling, an analyst with China Asset Management.

With recent new initiatives such as the launch of the STAR board last year and its registration-based IPO system, there are “lots and lots of green lights” from regulators for greater development of the equity market, Ji said, according to a CNBC translation of his Mandarin language remarks.

China boasts the world’s second largest stock and bond markets, but most Chinese people have preferred to save their earnings or buy real estate. Speculators have tended to drive stock performance, earning the mainland markets the nickname of a “casino” in past years.

New kinds of investor behavior

There’s been a “mega shift” of funding from unregulated shadow banking-oriented wealth management products toward the capital market, said Cliff Sheng, partner leading the capital market service line of McKinsey in greater China.

Sheng added that after years of efforts to improve investor education among consumers, institution-managed products have increased their penetration.

(It’s) a clear opportunity for most mutual fund companies and managers, especially for those with (a) good track record, strong distribution network and established brand name.

Cliff Sheng

partner leading the capital market service line of McKinsey in greater China

Funding to Asia-based fintech companies dropped further in the third quarter by 12% from the prior three months, and 60% of the top deals took place in the U.S., according to data released this week by CB Insights.

 “The Chinese market is maturing, as seen by Ant Group and Lufax’s recent IPOs,” Conor Witt, analyst at CB Insights, said in an email. “The drop off in funding may also represent a cyclical pullback following significant funding growth in 2018. There are still large opportunities in the Chinese market, but the barriers to entry are heightened as later stage players have increased their market share in recent years.”

Short-term market risks

A woman at the security trading floor in Shenyang, Liaoning province of China.

Getty Images

Particularly in China, a number of industry developments this year from electric vehicles to health care have given investors a variety of attractive reasons to buy in, Ji said. The rapid run-up in stock market growth has increased the level of risk in the short-term, and he expects some pullback.

Still, Ji said he is confident in the longer-term picture that more funds will be keen to tap.

Details on the 14th Five-year Plan indicate China will put further emphasis on technology, health care and other recently established themes going forward, Ji said.

“China’s investment trend in the next 10 years won’t have a very big change” he noted.



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