Mainland equity funds rise fourfold

PUBLISHED : Friday, 04 January, 2008, 12:00am
UPDATED : Friday, 04 January, 2008, 12:00am

Buoyed by huge inflows from investors and healthy stock market returns, the mainland fund industry grew almost fourfold to 3.28 trillion yuan by the end of last year, according to initial figures released by Galaxy Securities.

The value of the mainland's 363 managed funds, which are heavily equity focused, soared 282 per cent from 856.5 billion yuan at the end of 2006 as millions of retail investors looking for better returns transferred savings deposits into securities.

However, the big yearly increase in assets under management disguised a sharp drop in growth during the fourth quarter as the securities regulator took action to dampen investor enthusiasm and the stock markets corrected.

'Growth in the fourth quarter dropped off the cliff,' said Peter Alexander, a principal at fund industry consultancy Z-Ben Advisors.

The value of assets under management grew just 5 per cent after surging 33 per cent, 58 per cent and 73 per cent in the first three quarters, Mr Alexander said.

The slowdown reflected a push by the securities regulator to rebalance the booming equities market by increasing the supply of securities through large share offerings and limiting fresh inflows into mutual funds.

Huge A-share offerings towards the end of the year by PetroChina and China Shenhua Energy gave investors greater investment choice, while the regulator allowed only four new mutual fund products into the market in the past quarter.

The benchmark Shanghai CSI 300 Index dropped 5 per cent in the fourth quarter as a market correction prevented significant equity gains.

Mr Alexander said the continued limited supply of new domestic funds during the first quarter of this year would see the focus shift to qualified domestic institutional investor mutual funds investing in assets overseas.

Three new mutual fund products offered by Fortune SGM, Fortis Haitong and jointly by Industrial and Commercial Bank of China and Credit Suisse were approved during the past week, taking the total to seven. China Merchants and E-Fund also soon will be able to offer QDII products after receiving regulatory approval yesterday.

'In the last week we have seen a clear sign that the QDII mutual fund platform will be massively expanded over the next two months,' Mr Alexander said.

Z-Ben estimates that moderate but volatile stock market gains will translate into growth of about 30 per cent for the mainland's fund industry this year.