China's asset management industry has been expanding rapidly since mid-2013, and continued growth will increase competition in the sector, says Fitch Ratings in a new report.
The total amount of mutual funds and mandates (excluding mandates held by asset-management companies' subsidiaries) reached CNY6.7trn (USD1.1trn) at end-2014, 61% higher than a year earlier. Fitch sees growth continuing, given the large amount of domestic savings deposits, rapid accumulation of assets and relatively low asset-management penetration compared with developed markets.
All asset classes experienced net inflows in 2014, except Qualified Domestic Institutional Investor (QDII) funds. Money market funds (MMF) expanded more rapidly than other classes, increasing six-fold within 18 months to CNY2.2trn at end-2014, driven by retail demand for MMFs sold via e-commerce platforms. China was the 10th-largest mutual fund and the fifth largest MMFs domicile globally as of end-2014.
China's investment industry is becoming more complex and competitive. Government deregulation has blurred the lines at which companies can enter the market and what products qualify. Fitch believes fierce competition among asset managers and other participants like banks, securities firms and trust companies may make it more challenging for asset managers to maintain high standards of governance and transparency.
Retail demand is the main driver of the Chinese mutual fund market and represents three-quarters of the market. Retail investors are more yield-hungry and dominate the equity and balanced funds, while investors in mandates are mostly institutional and focused more on fixed-income assets.
China has introduced several programmes since the early 2000s to gradually open up the Chinese financial markets to cross-border investments. The latest major step following the Shanghai-Hong Kong Stock Connect launched in November 2014 is the Mutual Recognition Programme, which allows CNY300bn of qualified funds from Hong Kong to be sold on the mainland starting 1 July 2015, and vice versa.
The agency believes that the asset managers best positioned to benefit from such industry expansion are those that adequately accompany their development with strengthened staffing, risk control and governance, and with the technological resources to support scalability, operational efficiency and direct distribution.
