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ôThe very strong, but largely speculative, flows into ChinaÆs mutual funds in 2007 have come to a very abrupt end, and the market has entered a period of falling assets,ö Cerulli says in its latest report on ChinaÆs asset management industry. ôLargely as a result of market depreciation, rather than net outflows, total assets under management declined by a hefty 34.5% in just six months.ö
The drop in AUM at fund houses in China is higher than the total decline for the region. Mutual fund assets under management in Asia ex-Japan fell by 12% to $991 billion in the first half of 2008 from $1.126 trillion at end-2007, according to Cerulli. The bulk of the AUM shrinkage in Asia was also due mainly to market performance rather than mutual fund redemptions.
Of the total AUM at fund houses in China as of June, 96% was in open-end funds while the rest was in closed-end funds. In terms of investment objectives, 55% of the AUM was invested in equities, 29.6% in balanced portfolios, 8.6% in bonds, 6.3% in the money market, and 0.4% in guaranteed products.
More difficult market conditions have opened the door to diversification initiatives in product, distribution, and markets, Cerulli says, and the net result is a more mature marketplace.
Cerulli notes that a gradual convergence among the three industries of asset management, insurance, and banking is underway as their respective regulators pave the way for more integration.
The firm adds that the growth of the institutional investment segment in China, although positive, is unlikely to offset the current retail slowdown, given the lack of formal outsourcing structures.
According to Cerulli, the top 10 fund houses in China in terms of AUM as at June 2008 were: China Asset Management (Rmb220.1 billion), Bosera Fund Management (Rmb136.2 billion), E Fund Management (Rmb119.2 billion), Harvest Fund Management (Rmb119.1 billion), China Southern Fund Management (Rmb117.6 billion), GF Fund Management (Rmb82.5 billion), Da Cheng Fund Management (Rmb81.6 billion), Huaan Fund Management (Rmb75 billion), China International Fund Management (Rmb75.9 billion), and Invesco Great Wall Fund Management (Rmb57.2 billion).
Combined, the assets of these 10 fund houses make up 49.8% of the total AUM of the asset management industry in China.
The share of mutual fund assets across ChinaÆs main distribution channels has not changed significantly since 2006. Custodian banks still have the largest share of distribution at 62.1%.
However, banks are likely to be more selective with the funds they put on their shelves.
ôFaced with a barrage of new managers and new products, banks now want to establish relationships with fewer and more reliable fund management companies and appear to be rejecting the supermarket model of fund distribution,ö Cerulli says.
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SGX’s new framework for Spacs will likely provide investors with a much-needed channel for direct deals, but the verdict is still out on whether it will bring liquidity to the bourse.