'Unmissable' long-term opportunities seen despite concerns over 2 events

The number of wholly foreign-owned mutual funds in China has more than doubled to nine this year, suggesting the world's second-largest asset management market continues to be a preferred destination of global asset managers, industry experts said on Friday.

That foreign funds are increasing in China despite the recent operational adjustments of some financial institutions shows that the country's capital market offers "unmissable" long-term opportunities, they said.

The latest mutual fund to enter the market is Allianz Global Investors, which received the approval to establish a wholly-owned fund management firm in China in August. Schroder Fund Management (China) Co Ltd commenced operations in China in June.

Meanwhile, BlackRock, the first global asset manager to set up a wholly-owned mutual fund management company in China after the country removed the foreign ownership cap in the sector in 2020, boosted the registered capital of its Chinese mutual fund subsidiary by 300 million yuan ($40.87 million) to 1 billion yuan in July.

Morgan Stanley, Fidelity International and Neuberger Berman also increased the registered capital of their wholly-owned mutual fund subsidiaries in China by 350 million yuan, 30 million yuan and 94 million yuan, respectively, this year.

These numbers, experts said, should help dispel concerns that China is losing its appeal to global asset managers.

Such concerns were sparked by BlackRock's recent decision to terminate an offshore China-themed fund and Norway's sovereign wealth fund's closure of its Shanghai office.

BlackRock announced on Aug 31 its move to terminate the China Flexible Equity Fund, a China-themed offshore fund with a net asset value of only $21.4 million. Citing that the asset value managed by the fund was relatively small, BlackRock said on Thursday the fund liquidation is part of "routine fund management operation".

The asset management giant denied media reports it is pulling out of China. "Our commitment to the Chinese market remains steadfast," BlackRock said in a response.

Meanwhile, Bloomberg reported on Thursday that Norway's Norges Bank Investment Management has started winding down its office in Shanghai as its Singapore office now covers its Asian business operation.

The move does not mean that the sovereign wealth fund will withdraw investments in China, as the company stressed that the move does not affect its investment strategy in China.

Zhou Maohua, an analyst with China Everbright Bank, said the two instances might have created a wrong impression in the market that drastic financial market fluctuations in recent years had induced "a mismatch between returns and costs" in the operations of some foreign financial institutions, prompting them to make operational adjustments.

But the trend of global asset managers adding investments in the Chinese market to capture the growth potential of China's asset and wealth management industry remains intact, Zhou said, as the country's more than 400 million middle-income population has significant demand for wealth management products.

Yan Xiaoqing, general manager of Lubomai Fund Management (China) Co Ltd, Neuberger Berman's subsidiary in China, said the company has strategic and firm confidence in the Chinese market.

"China is the world's second-largest economy, and the longterm investment appeal of the country's capital market is unmissable," Yan said.

Yang Haiping, a researcher at the Central University of Finance and Economics' Institute of Securities and Futures, however, struck a note of caution, saying China's capital market is under multiple pressures; Therefore, systematic efforts are needed to promote healthier market development and boost foreign investors' confidence.

A mutual fund is a financial vehicle that is publicly offered to investors, collects money from them and invests in securities like stocks, bonds, money market instruments and other assets. A mutual fund manager manages a fund's portfolio of assets.