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Leading Chinese brokerage companies are poised to launch a product that is similar to a mutual fund to individual investors in a move to widen their scope of business and boost profitability.
"Presently, we are studying the feasibility and design of the new product and it will take some time before it hits the market," said Jin Wenlong, a spokesman with Haitong Securities Co Ltd, China's biggest brokerage house in terms of capital.
"That offers an opportunity for the securities companies to grow their business, and almost all the big brokerages are eying the new business."
Shenyin and Wanguo Securities Co Ltd also said it will accelerate the feasibility of launching the new product, which is known as the collective asset management scheme.
Under the scheme, investors need to make a minimum investment of 50,000 yuan (US$6,024).
Commercial banks are required to act as the custodian to oversee how brokerage companies use the capital.
Brokerage firms with 300 million yuan in net assets are eligible to sell the collective investment products and are required to disclose to investors the portfolios and the price changes of their investments every quarter.
The collective investment scheme covers from local currency A shares and bonds to the country's securities investment funds, which are worth more than 160 billion yuan in total assets.
The China Securities Regulatory Commission, which regulates the Shanghai and Shenzhen stock markets, eased the restriction on brokers' asset management business as part of a bailout plan in December last year, permitting them to manage stock and bond investments for individual investors.
China's securities firms also want to launch more products to make up for the decline in revenue from the traditional stockbroking and investment business due to a downward cycle that has lasted more than two years.
The country's 131 brokerages posted a net loss of 3.4 billion yuan for the first three quarters of last year, according to official statistics.
"For the collective investment product, you will have to put in place a good internal control to ensure the safety of investors' principal, and ban any practice like stealing clients' money," said Jin of Haitong Securities.
However, fund management firms are not worried about the competition from the brokerages, noting that they target different types of investors.
Most of the mutual funds sold in China catering to public investors have a minimum investment of only 1,000 yuan.
(Shanghai Daily February 10, 2004)
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