Global investors drawn to actively-managed China funds

China’s mutual funds industry will be swelled by accelerating inbound investment into actively-managed products over the coming 24 months, according to our colleagues at Funds Europe, who recently ran a China Investor survey.

There will also be a more modest rise in cross-border flows into China-domiciled passive investments, specifically index trackers and exchanged-traded funds (ETFs), over this period.

This point is confirmed by the survey results, where 38% of respondents said that actively-managed fund products are central to their investment strategies in China.

However, this figure will rise to 63% in two years’ time, with respondents predicting a surge in the importance of actively-managed fund products for foreign investors.

Simon Kellaway, Regional Head of Greater China and North Asia Financing and Securities Services at Standard Chartered, said: “As China’s trade surplus gradually narrows and the vertiginous rates of growth delivered by some Chinese companies revert to more moderate levels, the opportunities for asset managers that are skilled at stock picking will become increasingly important.”

These survey results reflect China’s continuing growth to become the fifth-largest mutual fund market worldwide with assets in excess of US$2 trillion as of August 2020. Money market funds account for roughly half of China’s mutual fund assets, with retail investors accounting for approximately two-thirds of money market fund assets according to ICI Global data.

However, there is strong potential for retail investors to increase their holdings of risk assets in search of higher yield, particularly through a shift in allocation out of money market funds into actively-managed equity funds.