China’s fledgling asset management marketplace will eclipse that of Hong Kong’s in size by 2004, despite a debilitating epidemic and its macroeconomic impact, forecasts Cerulli Associates (CA).
Indeed, CA estimates that by 2004, retail assets under management in China will stand at US$26.7 billion, while in Hong Kong, retail fund assets held by local investors — not simply cross-registered for sale in the Special Administrative Region — will reach almost US$25 billion.
China’s retail fund industry, which at the end of 2002 had US$16 billion in assets under management (AUM), is expected to enjoy a five-year compound annual growth rate (CAGR) of 24.3 per cent, causing expansion to US$48 billion. In contrast, Hong Kong, which has the oldest and most established retail asset management marketplace in the region, outside Japan, is only expected to show a five-year CAGR of 8.4 per cent, representing an estimated US$32.5 billion in 2007.
CA notes that a large portion of China’s mutual fund assets come partly from institutional investors like insurance firms and pension funds, such as the National Social Security Fund (NSSF). Its growth projections assume that insurers will reach their maximum mutual fund investment limit of 15 per cent (currently they are estimated to be at around five per cent). CA also believes the NSSF, which is allowed to invest up to 40 per cent of its assets in mutual funds, will reach a 25 per cent exposure by 2007.
Retail investors are expected to play an important role in the development of the mutual fund industry in China. CA estimates that mutual funds in China now account for about 1.5 per cent of total household financial assets in China, a figure that is expected to rise to about 3.2 per cent by 2007.
Banks are expected to be the main engine of distribution of China’s open-end mutual funds. They already account for as much as 86 per cent of open-end fund assets under management, a figure that could fall to about 75 per cent by 2007. The Chinese financial regulator, the China Securities Regulatory Commission (CSRC), has permitted stockbrokers to sell mutual funds, but in the long-term CA believes banks are likely to maintain their dominant position.
