China's love for new mutual funds cools after tough year

Hong Kong

A TUMULTUOUS year for Chinese markets looks to be finally weighing on demand for new stock funds.

While equity funds have raised 2 trillion yuan (S$429 billion) this year - matching 2020's record - fund-raising this quarter is poised to be the slowest in two years, according to data from consultancy Z-Ben Advisors. Launches have slowed through the year as economic recovery loses steam and China's crackdown on private enterprise dampens sentiment.

It's no surprise that interest is waning. Mom-and-pop investors who rushed to buy products as the market climaxed in February have been on a choppy ride. Stock funds tracked by China Securities Index returned a weighted average of 5.7 per cent this year, but are down 6 per cent from this year's high when inflows were largest.

While the year-to-date figure is still an outperformance by around 11 percentage points against the benchmark CSI 300 Index, it is a letdown compared to market-trouncing annual returns of over 40 per cent in the past two years.

Wendy Wang, a 29-year-old working in the education sector in Shanghai, is among those who have been through a test of patience after purchasing a flagship product managed by Invesco Great Wall Fund Management's Liu Yanchun in late 2020.

"It's been a lot more difficult to make money this year," she said. "I'm still 7 per cent in the red, but I still trust Chunchun and plan to buy further dips," she added, referring to a pet name for the portfolio manager.

Liu's fund is down 8.5 per cent this year in total return terms after suffering a drawdown as deep as 32 per cent, a performance that is difficult to stomach for investors used to stellar results over the last two years.

Chinese savers have fewer avenues to invest than peers abroad due to the nation's capital controls. Households hold just 2 per cent of their assets in stocks and equity funds, compared to 7-9 per cent in the US, Japan and Europe, according to a central bank report in 2019.

Still, fundraising in 2022 will likely slow further as muted returns put off investment decisions, said Samuel Gong, analyst at Z-Ben Advisors. "After a disappointing year for most, (and) especially severe blows for those who joined the rally late, the excitement for mutual funds will revert to the mean," he said. BLOOMBERG