China Mutual Fund Series 3Q14

The Chinese mutual fund industry hit a new quarterly high with AUM reaching RMB3.83tr, posting a QoQ growth of 8%. The boom was in large part due to the Mainland’s stock market rally, with the CSI 300’s near 14% quarterly increase driving the growth of equity-centric funds by almost RMB150bn in capital appreciation alone. While Money Market Funds (MMFs) remained the major contributor to inflows, MMF inflows in Q3 were insufficient to offset outflows from all other fund categories, resulting in slightly negative flow. Meanwhile, parent non-core AUM saw considerable growth, hitting RMB1.86tr in September. In response to heightened sector risk, we are seeing increasing regulatory pushback including restrictions on the multi-client SA business.

Despite an 8% decrease in its MMF AUM, Tianhong still ranked the top player in market share. This quarter saw a new dynamic in the distribution space emerge as bank-backed FMCs such as ICBC Credit Suisse and CCB Principal started building up their direct banking services and MMF-linked bank accounts, providing steady inflow to corresponding MMFs. Meanwhile, in the equity space,Harvest notably launched its first closed-end SOE-reform fund, which raised RMB10bn in its first day. Following its success, we expect to see other managers follow suit and prepare to launch similar reform-focused funds in the coming quarters. Thematic funds also delivered strong performance, including those of Fullgoal and Qianhai Kaiyuan which invested in the national defense industry and Huasheng’s manufacturing-focused Thematic Enhanced Equity Fund which realized quarterly returns of over 30%. In light of strong equity performance, we forecast an imminent drop in MMF growth rates. Going forward, we expect to see strong performance play out among managers with a defined strategy and differentiated product offerings.

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Please see the Sample below.