A-share mutual funds resilient amid market swings

Demand for mutual funds that invest in A-share assets has remained resilient despite the rollercoaster ride on the mainland stock exchanges during the last two months due to the novel coronavirus outbreak, according to market data released on Monday.

The robust demand is an indication that investors are still confident about capital market prospects despite short-term fluctuations and reaffirms the trend of Chinese wealth flowing into stock assets via financial products, said analysts.

A total of 58 mutual funds that invest in A-share assets, or stock funds and balanced funds, were launched in the mainland market in January and February, with 181.3 billion yuan ($26 billion) raised, about three times the amount raised in the same period of 2019 recorded, according to Wind Info.

The wave has heightened this month so far, as the first week saw 21 new stock funds and 27 new balanced funds hitting the market, according to Yuekai Securities.

Moreover, 12 mutual funds investing in stock assets issued last month were sold out on the very first day of subscription, versus 28 for the whole of 2019, according to data compiled by financial media chnfund.com.

Among them, a balanced fund, launched by the Shanghai-based Foresight Fund Management, attracted more than 120 billion yuan in subscriptions on Feb 18, 20 times its sales target and the highest subscription amount in the history of the mainland mutual fund industry.

Mutual funds have become sought-after as more investors were upbeat about stock assets and preferred to trust fund managers to invest their money instead of trading by themselves, said Yi Fan, a senior researcher with jijindou.com, a domestic mutual fund investment consultancy.

On the one hand, equity assets have become a good bet for investors given the attractive historical performance, both in 2019 and the beginning of this year, as well as the expectation of lower interest rates that will pare returns of bond assets but boost stock prices, Yi said.

On the other hand, mutual funds have proved their advantages over individual investors by outperforming the market last year, she said.

"Technology was the strongest sector in 2019, and probably this year as well. However, many individual investors have found it hard to make decent profits in cuttingedge industries and turn to fund managers for professional management," Yi said.

Over the course of 2019, the benchmark Shanghai Composite Index rose by 22.30 percent to 3050.12 points, while stock funds registered a 39.61-percent return on average, according to Wind Info.

On Monday, the SCI dropped by 3.01 percent to close at 2943.29 points after tumbles in overseas markets amid concerns that central banks are running out of space to tackle uncertainties of the fast spreading coronavirus.

Yet overseas slumps, especially on the Wall Street, should only have a short-lived impact on the A-share market and leave the long-run uptrend intact, considering an overall low market valuation and the trend of residents' wealth funneling into stock assets, said Yang Delong, chief economist at Shenzhen-based First Seafront Fund.

"In-demand mutual funds may continue springing up. Or, funds will gradually replace stock accounts as the major channel of residents' savings flowing into the stock market," Liu Chenming, chief strategist with TF Securities, said in a research note.

The A-share market has long been dominated by individual investors, but this investor structure is undergoing a major transformation as the nation pushes forward capital market reform and opening-up, analysts said.

The China Securities Regulatory Commission, the top securities regulator, vowed on Feb 15 to further boost the scale of mutual funds investing in equities and introduce more pilot programs of the mutual fund investment advisory business. On April 1, the country is scheduled to lift the foreign ownership cap on mutual fund management companies.

By the end of 2019, China's mutual fund industry held 2.43 trillion yuan worth of free-float market value in the A-share market, or 5.04 percent of the total, according to China Galaxy Securities.