China sees record fund launches amid market boom

08:31, November 08, 2010      

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China is witnessing a record number of mutual fund launches this week as the industry has taken advantage of October's stock market rally to whet investor appetite after a lackluster performance during most of the year.

A total of 26 fund products are being launched or are in the fundraising process, the most in a week, which also reflects regulatory support, China Galaxy Securities Co said. On Monday alone, eight new funds hit the market.

"Now is a pretty good time for fund houses to launch new products," said Li Lan, analyst at Galaxy's fund research centre. "It's a record in number, but in terms of size, new funds are still much smaller than those launched during the 2006-2007 bull run, but the prospects look encouraging."

China's stock market lost almost 20 percent during the first nine months of this year. But the market staged a 12 percent rally in October, fuelled by expectation that the Federal Reserve's renewed monetary easing efforts would fuel inflation and drive up asset prices.

Chinese investors, however, appear divided over future trends. The strong market gain has led to painful outflows from equity funds as well as fresh money inflows, resulting in a nearly 50 percent surge in trading volume in October compared with the previous month.

Chinese fund houses, suffering from shrinking assets, are rushing to launch funds to capture new money flows.

HSBC Jintrust, HSBC'sChinese venture, is launching a new fund that focuses on consumer stocks, betting that China's rebalancing toward domestic consumption would benefit the sector.

Guotai Junan Allianz Fund Management Co, partly owned by Allianz , is launching an exchange-traded fund that buys mainly commodity stocks, betting producers of copper, gold and cotton will benefit from rising inflation.

New funds being launched also include several bond funds, as well as overseas investment products under the Qualified Domestic Investor scheme.

Analysts say demand for bond funds has been rising after regulators cracked down on investment trust products, but QDII funds, which channel domestic money overseas, have attracted subdued interest mainly due to expectation of further yuan appreciation.

"I expect to see the fund launch boom to continue to the end of the year, when fund houses are due to compete for higher asset rankings," said Zhang Haochuan, analyst at Shanghai-based fund consultancy Z-Ben Advisors.

New funds launched so far this year raise about 2 billion yuan on average, according to Z-Ben. During the 2006-2007 bull market, a fund could easily snap up more than 10 billion yuan from investors rushing to hand in money at the launch.


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