Giant mutual funds set up to stabilise China A shares

Five new mutual funds worth a total of Rmb200 billion are believed to have been funded by the Chinese government to support the equity market after weeks of wild A-share price swings.
Giant mutual funds set up to stabilise China A shares

Giant mutual funds have been set up in a bid to bulk purchase shares and stabilise China’s volatile equity markets.

The five funds, with assets of more than Rmb200 billion ($32.2 billion) in total, are seen as the Chinese government’s latest response to wild A-share swings over the past month.

It comes as the Shanghai and Shenzhen stock exchanges have banned dozens of traders from operating amid accusations of destabilising the markets.

Three mutual fund companies - Guangzhou-based E Fund Management, Shenzhen-based China Merchants Fund and China Southern Asset Management - announced that they had completed fundraising for three mixed asset strategies last Friday (July 31).

These three funds share a number of common features: they were all authorised by the China Securities Regulatory Commission (CSRC) on July 28; they opened for subscription for just one day via the companies’ direct sales channels; and they all closed for subscription on the morning of July 31, according to the companies’ filings.

The companies have not yet disclosed their total fundraising, but Wang Qunhang, director of the fund assessment centre at Beijing-based Jian Financial Information, indicated the three funds had a capitalisation of Rmb40 billion each.

It comes after another two Beijing-based fund companies - China AMC and Harvest Fund - completed their fundraising of mixed asset strategies on July 13, with each holding more than Rmb40 billion, following the market plunge in the first two weeks of this month. Harvest indicated there were only two investors in its newly-established fund - while one investor brought in Rmb40 billion, the remaining came from the company’s funds.

These new giant funds are the five largest actively-managed funds among mainland China’s equity and mixed asset strategies, with the exception of money market funds. Presently, only two domestic mixed asset funds have an AUM of more than Rmb20 billion, according to data from research house Morningstar.

Chinese media widely speculated that these five giant funds have been funded by the China Securities Finance Corporation (CSFC), an institution set up by CSRC to provide margin financing loan services. The People’s Bank of China has been giving the CSFC liquidity injections to fund mainland securities firms’ stock purchases since July 8 in order to stabilise the equity market.

Wang said the CSFC selected these five companies as managers based on their active management capabilities in equities and bonds, and the size of their assets.

The CSRC, China’s securities regulatory body, said on July 8 that it would buy mutual funds via the CSFC to support fund companies’ liquidity and boost investor confidence.

Asked last Friday if the CSFC had bought into the five new funds, a spokeswoman declined to comment.

Separately, both the Shanghai and Shenzhen stock exchanges announced last Friday and Saturday that they had banned 34 trading accounts for three months. The bourses claimed that these institutional and individual accounts had been involved in systematic trading patterns which disturbed market order. The suspensions start today (August 3).

These included a segregated product account from Shanghai-based Fuanda Fund Management and a segregated product account from Shenzhen Rongtong Capital Management, a subsidiary of Rongtong Fund. The remaining accounts came from private hedge fund strategies and trust products.

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