Chinese mutual funds shift money to stocks

175
2
Chinese mutual funds shift money to stocks

The latest report on mutual funds showed that Chinese investors are starting to shift their money from bonds to stocks, and are betting on a robust recovery for riskier assets.

Foreign money has also been flowing into China equities, which sent the benchmark index up 7.4 per cent in January, although analysts say that overall foreign positioning is still conservative and more could come.

China has taken measures to boost its economy, including dismantling its strict zero-COVID policy and supporting the property sector in late 2022 because of the shift in allocation towards riskier assets.

China's stock benchmark has gone up more than 20 per cent from an October low, while the five-year Treasury has surged more than 25 basis points as bond prices slumped.

Mo Zhaoheng, investment director at Guangzhou Hanma Investment Management said we are at the beginning of a recovery. It would benefit stocks while troubling fixed income assets. Mo said that he had added more stock positions in November and December when investors shifted money out of bonds because of the fear that the bond bull market may be over.

The assets under management of Chinese equity mutual funds rose 8.7 per cent to 2.47 trillion yuan $366.38 billion in the fourth quarter, after dropping 7.3 per cent a quarter earlier in the quarter, while bond funds fell 6.9 per cent to 7.4 trillion yuan $1.1 trillion after rising for six straight quarters, according to TX Investment Consulting.

Goldman Sachs analysts said that overseas investor positioning had not fully caught up with the improvement in sentiment and fundamentals, suggesting that both international and domestic investors will continue to buy stocks.

In the fourth quarter, new launches of equity funds remained subdued, according to Lei Meng, China equities strategist at UBS Securities, while noting that such issuance of funds usually lags stock market performance for about three months.

As Chinese shares bottomed out in November, Meng expected mutual funds' issuance to increase in February.

Yang Delong, Chief Economist at First Seafront Fund Management, said it will bring a steady stream of incremental funds to fuel the market.