Beijing liberalises mutual fund market

Mainland brokerages and insurers with total assets of at least 20 billion yuan each will be eligible to sell mutual funds from June 1

PUBLISHED : Wednesday, 20 February, 2013, 12:00am
UPDATED : Wednesday, 20 February, 2013, 2:20am

Beijing has given the green light to brokerages, insurers, hedge funds, private equity and venture capital groups to launch mutual funds as part of efforts to bolster institutional buying in the stock market.

The decision is expected to introduce more than 50 new competitors to the mutual fund sector as the China Securities Regulatory Commission (CSRC) strives to drive up the key indicators.

The CSRC said in a statement that the liberalisation was aimed at bolstering the growth of the mutual fund sector and the capital market. Brokerages and insurers with total assets of no less than 20 billion yuan each will be eligible to sell mutual funds to the public from June 1, the statement said.

Institutions such as the mainland's hedge funds will also qualify to issue mutual funds if each of them has at least 2 billion yuan of capital under management.

The policy is in line with CSRC chairman Guo Shuqing's determination to support institutional buying in the volatile stock market since he took office in late 2011. 

The new rule grants other institutions an access to the mutual fund industry. It will help strengthen the team of institutional investors

Currently, China's 77 mutual fund houses manage a combined 2.89 trillion yuan of funds that invest in stocks and bonds. Mutual funds that can raise capital through public offerings are the major financial institutions focusing on equity investments in China.

Hedge funds and the money management products of brokerages that raise money privately, are still in a rudimentary stage of development on the mainland.

The CSRC hopes the liberalisation will help attract more retail investors to hand their money to professional asset managers for equity buying. Many of the more than 100 million retail investors on the mainland have lost their savings due to poor investment decisions made during roller-coaster rides on the market.

Institutional investors account for just some 14 per cent of the total turnover on mainland stock markets, far less than the 50 per cent to 60 per cent share generated by such investors in Western markets.

"The new rule grants other institutions an access to the mutual fund industry," the CSRC said in the statement. "It will help strengthen the team of institutional investors."

Analysts estimated that at least 50 non-mutual fund institutions would apply to issue mutual funds.

The bearish mood on the mainland market between 2010 and 2012 dented earnings of China's brokerages due to shrinking trading volumes. Commissions collected from share trading accounts for nearly 60 per cent of the brokerages revenues.

The CSRC has been seeking to help brokerages diversify their revenue sources to survive the market downturn.