The growth of China's investment fund sector is phenomenal. Last year, 39 open-ended funds went to market and collected 67.8 billion yuan from investors. By the end of the year, a total of 109 funds, both closed and open, had some 170 billion yuan in assets on their books, a 20 per cent rise on 2002.
This was especially impressive in a year when share prices in China mostly stagnated and when nine out of 10 retail investors surveyed in September said that they wanted to quit the market completely. The dream of the China Securities Regulatory Commission (CSRC) to create a class of institutional investors able to draw money out of bank accounts, monitor the managements of listed firms and invest for the long-term, appears to be becoming a reality. Rapidly.
The regulator only got round to encouraging the issuance of standardised investment funds in 1997, and the first were issued in March 1998. Since then, the industry has advanced to more complicated open-end funds and has also learned to diversify its products. The limited number of financial instruments traded in China limits how much fund managers can actually fulfil promises, but they are certainly trying.
The coming year will only see more money flow into the funds. More fund companies will be established, including more joint ventures. It is likely that another 80 billion yuan, possibly more, will be raised.
The new middle class is not alone in handing over its money. Insurance companies are at present mostly permitted to invest 15 per cent of their assets in the funds, although they probably still have only committed 5-7 per cent, about 40-50 billion yuan. But as their asset base grows, and stock market regulation improves, these figures will rise.
Add to that the Qualified Foreign Institutional Investors who might be tempted to put some of their US$1.7 billion into local funds. And then there is the National Social Security Fund (NSSF), established by the central government in 2001 to subsidise provincial pension pools, which at present has 5 billion yuan available for share investment.
At the end of last year, the funds had some 65-70 per cent of their portfolios invested in equities, giving them an 8-9 per cent share of tradable market capitalisation. This year, the proportion could double, especially after the Investment Fund Law comes into effect later in the year and the 80-per-cent-of-assets limit on their investment in equities disappears. Insurance funds will be allowed to invest on their own, which will drain money out of the funds, but increase the total amount of institutional money in the market.
