Southern Fund Management Co. will issue China's first Listed Open-ended Fund (LOF) on Tuesday. The Shenzhen Stock Exchange received approval last Tuesday to introduce such funds.
LOFs can be listed and traded in the stock exchange, and their issuance is another major innovation in China's fund industry. It increases the convenience of trading mutual funds.
Southern Fund's LOF is also an equity fund. Investors can subscribe via the exchange network or over the counter with the fund company, the Industrial and Commercial Bank of China and certain agent securities firms. The issuing period will run until September 29.
LOFs have a far wider sales and trade network than conventional mutual funds, said Xue Jirui, an analyst with CITIC Securities Co. The fact that investors can purchase and trade the fund like a stock will attract some customers.
If the first LOF proves successful, more companies will be encouraged to produce similar products. A number of fund management companies have already filed applications with the Shenzhen Stock Exchange and the China Securities Regulatory Commission (CSRC).
Currently, closed-end and open-ended funds have two separate issuing and custody systems in China, and the two types of fund are traded in two separate markets.
Qi Bin, deputy director of the CSRC's fund supervisory department, said last week that the commission had been promoting the transfer of the closed-end funds to open-ended funds, but he also said that no timetable is set for the move.
Qi also noted that risk control is essential. The Shenzhen Exchange issued a series of rules on LOFs last week to guide the listing and trading of the funds.
Fund managers and industry observers are speculating over how much in the way of fresh funds the first LOF will attract.
Li Linling, an analyst with Ping'an Securities, said that LOFs seem to be more appealing to small and medium-sized investors because of the lower transaction cost and greater trading efficiency than conventional funds.
But Xue Jirui, with CITIC Securities, said that there is not likely to be a deluge of fresh funds. The nature of LOFs is basically the same as that of existing mutual funds, according to Xue, and the stock market's performance is still unsatisfactory.
The bourses have undergone a correction since late April that has hit the initial public offerings of mutual funds. Performance in the second and third quarters contrasts sharply with the fast expansion of the fund industry at the end of last year and in the first quarter of this year, when the market rallied.
(China Daily August 23, 2004)
