Funds News
- Fund launches pick up on demand
Date: 27-Mar-2007 Sources: (Shenzhen Daily)
DOMESTIC fund management companies are queuing to launch new stock funds to meet brisk demand for fresh products, while redemption pressure mounts on existing funds, according to fund managers and analysts.
At least three mutual fund management companies, HSBC Jintrust Fund Management, Fortis Haitong Investment Management Co. and China Merchants Fund, are launching equity-focused funds aiming to raise 10 billion yuan (US$1.3 billion) each.
More fund launches will follow and a number of new fund management companies will be set up later this year as the stock market gears up for further expansion, driven by a flood of initial public offerings and new share sales.
If the three funds meet their targets, the total amount of mutual funds raised in the first quarter would exceed 100 billion yuan, triple the year-ago period, according to industry data cited in domestic media.
'Investors remain highly bullish about new fund subscriptions,'said Zhou Liang, analyst at global fund intelligence firm Lipper.
The overall size of China's 1 trillion yuan mutual fund industry, however, is not growing as rapidly as the figures indicate, because part of the money used to buy new funds over the past two months had been redeemed from the existing funds.
'Redemption pressure is getting bigger as fund investors sell old funds with high net-asset value to buy new funds,'said Li Yijun, a sales manager with China Asset Management.
Lipper's Zhou said that, based on his own observations, China's mutual fund sector has witnessed a net outflow since February. Accurate data will be available when funds release their quarterly results next month, he added.
The practice of selling existing funds to buy new funds is based on a mistaken belief among some retail investors, who account for the majority of fund buyers, that new fund units are a bargain compared with existing funds because they are sold at a par value of 1 yuan.
Most mutual funds have recorded hefty gains since the start of last year as Shanghai's benchmark stock index surged more than 160 percent, sharply raising the unit prices of mutual funds.
To counter rising redemptions, a number of domestic open-ended funds opted to pay out large dividends, or split their fund units to lower the net asset value, or price, per unit.
Fortune SGAM Fund Management split the units of one of its funds Monday, lowering the net asset value to 1 yuan per unit from more than 2.4 yuan as of Wednesday.
The dividend payouts were a factor behind a recent increase in volatility in the A-share market as funds sold down their portfolios to raise money for the payments.
After the payouts, which lowered the net asset value of their fund units, they brought in new fund investors and quickly bought back shares they had just sold, fund managers said.
The manoeuvre hurt the performance of some funds that had to pay higher prices for the shares they bought back, analysts said, although fund industry executives said they had no choice, to protect the size of their funds.
'What else can we do? We have to understand the needs of our customers,'said Li Jianguo, vice chairman and chief executive officer of Fullgoal Fund Management Co., a joint venture with Canada's Bank of Montreal.
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