Money-market products drive China fund AUM to new peak

Chinese mutual fund assets nearly doubled last year to a record high of Rmb8.4 trillion ($1.3 trillion), driven largely by money-market products, which analysts say have stabilised the industry.
Money-market products drive China fund AUM to new peak

Chinese mutual fund assets saw their biggest rise for eight years in 2015, jumping 85% to hit a new high of Rmb8.4 trillion ($1.3 trillion), according to the Asset Management Association of China (Amac). This was mostly driven by flows into money-market funds (MMFs) in the second half, a trend that analysts expect to continue this year, in light of ongoing market turmoil.

Some firms benefited more than others from these flows. Tianhong Asset Management’s standing as the biggest MMF provider is under threat, with rivals posting stronger growth and closing the gap, according to data from Galaxy Securities.

2015 was a year of two distinct halves for the industry, which comprises 100 fund houses and 2,722 products, excluding institutional and segregated account business.

A total of 1,771 equity-centric funds – including mixed-asset funds – saw their AUM grow 56% last year to Rmb3 trillion. But that masks the fact that they suffered a 27% asset drop during the equity market rout in the second half, having risen 123% in the first off the back of the stock boom. The second-half decline came despite the Chinese government setting up five mutual funds in late July, worth a total of Rmb200 billion, to support equity markets.

On the other hand, China’s 220 MMFs more than doubled their assets (by 113%) last year to Rmb4.4 trillion, with most of that growth coming after the CSI 300 peaked in June before tanking since. MMF AUM rose 84% in the second half, versus 16% in the first. The popularity of these products have brought greater stability to the fund industry, note analysts.

Total mutual fund assets grew a whopping Rmb1.2 trillion in December 2015 alone. China MMFs tend to attract flows at the year-end in order to boost AUM for a better market share ranking. In addition, bond funds and capital-guaranteed funds benefited when China resumed approval of IPOs in November, noted Liu Shichen, an analyst at Shanghai-based consultancy Z-Ben Advisors.

Liu expects MMF assets to grow further this year amid the stock-market turmoil, because the take-up of online distribution has allowed mass-retail investors to easily switch deposits into relatively safe products with higher yields. Most Chinese MMFs offer a seven-day annualised yield of around 2.7%, well above the bank deposit rate of 0.25% to 0.35%.

Moreover, online platforms enable investors to shift money easily from risky assets to MMFs, providing stability to the fund companies’ overall assets, Liu added.

Meanwhile, Tianhong is in danger of being overtaken as the largest fund house, having seen its AUM rise just 14% last year to Rmb674 billion. Yu'EBao, the firm’s flagship MMF, saw its assets grow a mere 7.2% to Rmb621 billion, as against 212% the previous year.

By contrast, Beijing-based China AMC and Guangzhou-based E Fund – the second and third biggest fund houses – recorded AUM increases of 78% to Rmb590 billion and 159% to Rmb576 billion, respectively. As of end-2015, Tianhong’s AUM was only Rmb84 billion bigger than that of China AMC, compared to a gap of Rmb258 billion at end-2014.

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