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China funds industry grows despite plunging markets

Morningstar adjusts its onshore China fund categories amid strong product growth and regulatory changes.
beautiful shanghai at dusk , huangpu river and financial district skyline in sunset

The China mutual fund market saw robust growth in 2021, despite the dismal performance of the country’s equity and bond markets. More than 1,600 new funds launched in 2021 as of the end of November, according to Morningstar’s research report.

As the China mutual fund universe grows, Morningstar has also continued to expand its coverage in the onshore fund market. 

“As part of our continued efforts to enhance our Morningstar Categories, we redefined and introduced some new categories for the onshore China fund market in October 2021 to facilitate better apples-to-apples comparisons,” Rachel Wang, director of manager research of China at Morningstar, said in a report.

For instance, Morningstar replaced Harvest Growth Income with Huaan Contrarian Strategy to provide investors with a “more differentiated option to build a diversified portfolio”. 

The RMB 7.75bn ($1.23bn) fund has generated a 241.42% of three-year cumulative return in renminbi-terms, outperforming its benchmark the CSI 300 Index (51.47%) as well as its sector average (113.36%) during the same period, according to

Compared with most aggressive allocation large-cap growth funds, which have a persistent bias toward blue-chip names and secular growth sectors, the Huaan Contrarian Strategy includes both secular growth and tactical high growth names.

Regulatory clampdown

Meanwhile, the fund advisory scheme that was first introduced to Chinese investors in October 2019 has gradually gained more traction. As of end November 2021, nearly 60 fund houses, brokerages, banks, and third-party fund distributors gained approval to participate in the scheme, up from 18 in 2020. 

“While the door to the fund advisory industry has been opened to a host of new entrants, the regulator tightened its oversight in this burgeoning industry,” said Wang.

In November 2021, the China Securities Regulatory Commission issued a consultation to officially ban product recommendation and model portfolio services provided by unlicensed firms and individuals. The regulator also laid out stricter disclosure requirements on fund performance and fees to promote greater transparency and limit misleading marketing materials.

Financial institutions have also received an “institutional regulatory status bulletin”, which prohibits institutions from hiring social media influencers as well as bloggers to give investment suggestions, recommending funds or pushing stocks to potential investors.

Part of the Mark Allen Group.