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China's booming mutual fund market is attracting more foreign companies to take part in local business.
Prudential Financial, a US-based financial group, is setting up a joint venture fund management company with Everbright Securities in Shanghai, the ninth of its kind in China within two years.
The foreign party will hold 33 percent of the venture, named Everbright Prumerica Fund Management Co Ltd, which just got its operational licence from the China Securities Regulatory Commission (CSRC) on Friday and will start formal operations soon.
Like many other foreign financial groups, before entering the Chinese market, Prudential Financial has spent considerable time and money studying the local environment to best apply its overseas expertise to attract investors here.
Michael Hines, senior vice-president of Global Marketing Communications of Prudential Financial, said an important finding in their research is the trend of local investors to become more sophisticated, shifting from a gambling mindset towards a more managed rationale.
The Chinese mutual fund market is growing at an incredible pace and is quickly catching up with developed markets, he said.
The market used to be dominated by institutional investors, but now is also for retailers, who, with more reasonable expectations of returns, are seeking more choices for investment, he said.
"Chinese consumers are moving towards mutual fund and away from stocks," he said.
Though eight fund management joint ventures have been established in China already, with two more in preparation, the market has sufficient room for further expansion.
Paul Thompson, chief executive officer of Everbright Prumerica Fund Management Co, said the company's investment in China is based on a long-term development strategy.
It will educate investors and assist clients in finding suitable investment tools for their savings, he said.
The 1.3 billion Chinese population now holds as much as 13 trillion yuan (US$1.56 trillion) of individual savings - a temptation that few asset managers can resist.
SYWG BNP Paribas, a fund management venture between Shenyin & Wanguo Securities and BNP Paribas Asset Management, also recently started to sell its first mutual fund - an equity fund.
The mounting inflationary pressure will cause more funds to be put into equity investment, said Zhang Weimin, investment director of the venture.
"This year will be a good one for equity investment, so we chose to promote an equity fund to bring the best returns to investors," he said.
Fortune SGAM Fund Management Co, another fund management venture in Shanghai, will also start to sell its fourth mutual fund on Wednesday.
The combination of overseas expertise and local resources is a big selling point for the funds of these ventures, experts said. But risks in the market mount as the expansion gathers pace rapidly, while liquidity in the equity market remains low, they warned.
According to CSRC statistics, China had 34 fund management companies by the end of 2003, which had issued 95 funds, with a scale of 165 billion yuan (US$19.9 billion) by then.
In the first quarter of this year, about a dozen funds had entered the market, with several reaching an issuing scale of more than 10 billion yuan (US$1.2 billion).
China allows foreign companies to hold as much as 33 percent stakes in the joint venture fund management companies now and up to 49 percent three years after its entry to the World Trade Organization.
(China Daily March 29, 2004)
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