China’s big institutional investors see stock holdings fall to historical low

The value of mainland Chinese stocks held by mutual fund houses has dropped to a historical low as a result of the country’s A-share market slump last year, while the market share of funds has been diluted by competitors, according to an industry spokesman.

“Mutual fund houses are the biggest professional institutional investor in China’s A-share market, but the A-share market value held by mutual fund houses has dropped to a historical low of 3.4 per cent from a historical high of 7.9 per cent before 2008,” said Hong Lei, chairman of the semi-official Asset Management Association of China (AMAC).

China introduced the first closed-end fund to the public in 1998 and since then has let fund houses sell products to retail investors who are in turn responsible for related risks, gains or losses.

The benchmark Shanghai Composite Index fell 12 per cent in 2016, making it one of the worst performing markets globally, with each investor suffering an average annual loss of 50,000 yuan (US$7,258) during the year, according to data provided by the Shanghai and Shenzhen exchanges.

By the end of 2016, assets under management in the mutual fund industry were worth 9.16 trillion yuan, Hong said in remarks made in Beijing on Thursday.

In comparison, the outstanding amount of off-balance sheet asset management products offered by banks exceeded 26 trillion yuan, Xinhua reported on Thursday.

“The competition is becoming fierce as banks, securities companies and insurance companies are developing asset or wealth management products, while banks could leverage their closer connection with clients to expand business,” said Adam Xu, a portfolio manager with Shanghai based mutual fund Guotai.

“Mutual fund houses are facing some corporate governance problems, like the dominant power of state-owned shareholders causing the management to put too much emphasis on short-term size and performance growth, while failing to introduce sufficient incentives to keep talent,” Hong said.

The turnover rate of fund managers in the industry peaked at 24.4 per cent in 2015, before declining to 12.5 per cent in 2016, which is still considered high, he said.

According to Securities Times, mainland Chinese mutual fund houses had 1,320 asset managers operating 3,049 funds as of last June, meaning each fund manager was handling an average of 2.3 funds.

Chinese individuals have 200 million accounts with the mutual fund houses, with 85 per cent of those accounts having assets below 50,000 yuan at the end of 2016, Hong said.