The China Securities Regulatory Commission (CSRC) has warned
fund management firms not to overexpand and urged them to do more
to educate investors.
The CSRC issued a circular cautioning against blind expansion of
funds, which it said could seriously undermine the stability of the
industry.
The regulator said fund management companies raising new funds,
expanding existing ones or converting closed-end funds to
open-ended ones must limit their size to the level stipulated in
the prospectus within six months from the date of release.
Analysts said overexpansion can have a negative impact on
performance because as a fund gets larger, it's increasingly
difficult to maintain the same level of return.
"Fund mangers should avoid overemphasis on the size of their
funds in their sales pitch," said Shan Kaijia, a funds analyst at
Haitong Securities. "Instead, they should help investors,
especially retail investors, select funds that are within the limit
of risk they can bear," Shan said.
At the end of October, the net asset value of all 341 funds
managed by 59 firms amounted to 3.3 trillion yuan, an increase of
280 percent from the beginning of this year, according to the
CSRC.
The regulator also announced tougher rules to rein in excessive
speculation by fund management companies, requiring them to do more
to educate investors about the risks involved in fund
investment.
Analysts said investors shouldn't rush into funds simply because
of their low price, but rather focus on funds that show the
greatest promise of long-term gain.
"Fund managers and investment advisors should tell their clients
to place less importance on short-term gains when they invest in
funds," said Shan at Haitong Securities. "They should remind
investors that buying funds is a long-term investment."
Hu Wenzhuo, an analyst at Orient Securities, said the
regulator's stance reflects the government push to stabilize the
stock market, which has risen to dizzying heights in recent
weeks.
"Fund investors are playing an increasingly important role in
China's stock market, as the combined portfolio of all mutual funds
account for about 40 percent of the total A-share market value," Hu
said.
(China Daily November 6, 2007)
