China’s mutual fund market has doubled over the past three years and is set to become Asia’s largest, according to a report from Shanghai-based consultancy firm Z-Ben Advisors.
It says serious questions will arise surrounding regional strategy as a result. The report states: ‘Such questions will center on the significant resources that have been poured into the second and third-largest markets – forming the core of most global managers’ Asia strategies – while China has largely been ignored.
‘This unfortunately will be the case for many that will need to pivot to an unfamiliar and often misunderstood market. All the while, Japan and Australia will simply be eking out modest growth. We project China’s industry to grow 15 percent annually for five years.’
Many say a key driver of the growth in China’s assets under management has been money market funds. But Z-Ben Advisors says that while this is true – they account for 51 percent of assets under management – it is in fact a red herring.
‘Although they keep capital in the industry, it’s our belief [these money market funds] will be redeployed to other asset classes. What that will look like remains up in the air: passive represents just 4.9 percent of the market,’ notes the report.
Further quirks are that active management has remained popular among investors willing to pay for returns – a balanced fund raised RMB10 bn ($1.5 bn) thanks to its track record – while only a small drop of China’s pension capital has entered the market.
Three dozen global managers have already joined the market, and Z-Ben Advisors expects that number to rise to 50 by 2018. ‘It’s part of a broader trend of China increasingly opening up to global managers,’ the consultancy says.
It adds that multiple government agencies are known to be drafting new foreign ownership rules that could allow for majority control of joint venture financial firms. But what needs to be understood is that accessing China’s retail trillions is a multi-year process.
‘Any global manager starting today could feasibly gain access by 2022 under its own brand name – three years after the likely first [access] recipient,’ states the report.
