Two Sino-foreign mutual fund joint-venture companies have closed equity funds to new subscribers for fear that the frenzy for A shares was going to burn new, ill-informed customers, as well as to protect fund performance.

China International Fund Management (CIFM) and Invesco Great Wall Fund Management have closed their equity funds, although the latter has reportedly just opened its funds again. (Officials at Invesco Great Wall, a JV between Invesco and Shenzhen-based Great Wall Securities, did not respond to requests for comment.) CIFM, which is a JV between JPMorgan Asset Management and Shanghai International Trust and Investment, has yet to decide when to re-open its funds.

The decision is a painful one, because clients may still redeem, however, and the past weekÆs wobble in the A-share market has seen the companiesÆ funds lost assets. CIFMÆs Alpha Equity Fund and China Advantage Fund, which last year gained 173% and 171% respectively, have seen AUM slip from around RMB7 billion each to RMB6.5 billion each in the past week. CIFM says this is only about 15% of the average redemption suffered by the industry.

CIFM also halted new subscriptions to its China Growth Fund, which launched late last year and now has RMB11 billion of assets.

But CIFM decided the sacrifice is necessary to maintain a sustainable business. Last year the Shanghai and Shenzhen exchangesÆ combined market index, the SSE300, gained 130%. Both CIFM and Invesco Great Wall had top-performing equity funds that enjoyed large inflows. Over the past three months, demand for A shares has veered into mania, attracting demand from inexperienced investors.

ôMany of these customers are new to mutual funds and donÆt understand them,ö says Mandy Wang, general manager at CIFM. ôThey think itÆs like a deposit and expect they can get over a 100% return each year. That to us was a danger signal.ö

She says CIFM expected criticism from its distributors, but was surprised by distributorsÆ support for the move. Banks are also worried that their clients will get burned, which would hurt their fee-income business.

The surge had prompted the China Securities Regulatory Commission to unofficially declare a moratorium on new fund launches (a story first revealed internationally by AsianInvestor.net).

Over the past week or so the market stumbled in response to warnings by government officials of overheating. It appears, however, that the government is satisfied that it nipped a bubble in the bud: yesterday it emerged in local media that the CSRC was now ready to approve five new funds.

Local media reports say China Construction Bank Principal Asset Management has been allowed to introduce a new fund, while First State Cinda Fund Management, a JV between First State Investments and the dud-loan asset management company Cinda, has been given the nod to launch its debut fund.

The news sent the A-share markets back on a tear, with Shanghai and ShenzhenÆs indices rising 1.5-2.0% for the past two days. It seems the governmentÆs engineering is keeping the equities party going. But for the sober heads at CIFM, this doesnÆt mean the market wonÆt suffer a hangover.