China mutual fund asset growth slows as crackdown weighs on equities

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China’s mutual fund asset growth slowed in the 11 months to November due to an exodus of capital from equity funds as Beijing cracked down on some sectors, according to Shanghai-based investment consulting firm Z-Ben Advisors.

Data compiled by the firm and shared with Asia Asset Management showed that the mutual fund market had 25.3 trillion RMB (US$3.96 trillion) of total assets under management as of November 2021.

Although that was up 27% from 19.9 trillion RMB at the end of 2020, the pace of growth was slower than the 36% gain for all of 2020.

“Active equity funds have continued to struggle with outflows although new offerings have continued to help grow total AUM,” Z-Ben says in a commentary on the figures. The number of fund listings rose to 1,907 last year from 1,435 in 2020.

Z-Ben says retail investors raised their allocations to fixed income-plus products – a strategy comprising investments such as high-yield debt, emerging-market bonds and short-dated bond funds – in the second half of 2021.

That was when earnings of China-listed or A-share companies came under pressure after Beijing tightened supervision of a number of sectors, including private education, property and e-commerce, as part of efforts to stabilise the financial system

Z-Ben says sector and thematic equity funds were hard hit by the crackdown, but that some international investors in Hong Kong were still keen to invest in these funds at low prices.

Meanwhile, the firm says investors increased allocations to money market funds after China’s central bank in August tightened credit quality requirements for wealth management products distributed by banks, while institutional investors opted for bond funds for tactical asset allocation because of the stable returns.

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