China’s mutual fund assets reached a record high of Rmb27.3trn ($3.9trn) as of August driven largely by the growth in open-ended funds, according to a new report from Fitch Ratings.
Open-ended mutual funds grew at a compound annual growth rate of 20% over five years to reach RMB24trn, while close-ended mutual fund assets reached Rmb3.3trn, according to data from the Asset Management Association of China cited by Fitch.
As of August, China’s mutual fund market is managed by 159 asset managers with 10,262 funds in existence.
Due to a combination of factors including loosening monetary policy, growing household deposits, an ageing population and demand for professional asset management services, Fitch expects growth to continue in the future.
Retail assets and institutional assets accounted for 54% and 46% of total mutual funds respectively, as of June, Fitch said.
Fitch noted that retail investors are more yield-driven and focus on riskier assets like equity funds, where 66% of the assets under management comprise retail, and balanced funds, where the figure is 81%.
In contrast, institutional investors invest mainly in bond funds, making up 87% of total assets in the asset class.
In terms of asset allocation, Fitch noted that the Chinese market is skewed towards money market funds and fixed-income funds.
At the end of August, money market fund assets in China amounted to Rmb11.2trn, or 47% of the country’s mutual fund assets, while fixed-income funds amounted to Rmb5.1trn, or 21%.
China became the world’s second largest money market fund market after the US in 2022.
Meanwhile, Chinese investors generally have a smaller appetite for equity funds, with asset under management standing at Rmb2.4trn, or 10% of the whole market.
In contrast, equity funds account for 57% of the US market and 33% in Europe.
Decreasing asset manager concentration
Among the 159 fund managers in China, 58 of them are state-owned enterprises, 53 of them are privately-owned local companies, 45 are joint ventures established by foreign asset managers and their local partners and three are wholly foreign-owned entities.
Fitch noted in its report that fund and manager diversification has broadened in recent years.
Ant Financial-backed Tianhong Asset Management is no longer China’s largest asset manager in 2021 and has been leapfrogged by E Fund Management.
The largest and top 10 fund managers manage 6% and 40% of local mutual fund assets respectively, which is more diverse compared with Europe (10%, 30%) and the US (20%, 60%).