Global asset managers are starting the year with a stronger foothold in China’s 26 trillion yuan ($3.8 trillion) mutual fund industry, just as the end of stringent Covid curbs and a renewed focus on the economy brighten prospects for investors.
(Bloomberg) — Global asset managers are starting the year with a stronger foothold in China’s 26 trillion yuan ($3.8 trillion) mutual fund industry, just as the end of stringent Covid curbs and a renewed focus on the economy brighten prospects for investors.
Fidelity International Ltd. and Neuberger Berman Group’s fully-owned fund units won long-awaited approvals in the final two months of 2022 to start business, shortly after Manulife Financial Corp.’s bid to take full control of its joint venture was cleared in November. They join BlackRock Inc., which had a head start by setting up fully-owned operations in 2021.
The approvals, which sped up after President Xi Jinping secured a third term at the Communist Party Congress in October, are set to help Wall Street firms gain a bigger share of one of the most promising asset markets. While new fundraising last year slumped by half from 2021 amid a stocks rout, 2023 looks more promising after officials pledged support for the property sector and dismantled its Covid Zero stance.
“It will take two or three months before all of the dust settles, but by summer and into the second half of the year expect China to be a top priority,” said Peter Alexander, managing director at Shanghai-based Z-Ben Advisors Ltd. “The fact that a number of key global competitors will be fully 100% operational with their own platforms will only just push that process forward at a quicker rate.”
Cautious Funds
Firms assessing China were cautious last year, as investors weighed the possibility of military conflicts across the Taiwan Strait after Russia’s invasion of Ukraine. The government’s focus on “complete stability” prior to the Party Congress slowed activity, according to Alexander, who advises global asset managers.
“Headline risks then surged, leading to global groups to call into question, serious question, if China should be prioritized at all,” he said. “I ended up spending several weeks on calls walking people back from that edge” and suggesting clients wait and see what action was taken after the congress.
The dramatic policy shifts, starting with pledges to support the property sector in November, have already bolstered investor sentiment. China’s benchmark CSI 300 Index has jumped 23% in dollar terms from its Oct. 31 lows, while Hong Kong’s main equity gauge, laden with Chinese technology stocks, has soared 46% over the same period.
As China’s Covid restrictions ease, growth will hopefully return to its “normal” path soon, party secretary of the People’s Bank of China Guo Shuqing said in an interview with the People’s Daily published Sunday. The nation will further open its financial markets by making more sectors and asset classes available to foreign investors, he said. TD Securities now expects economic growth of 5.3% this year — up from a previous estimate of 4.7% — according to a Jan. 9 research note.
The rebound bodes well for global money managers like Fidelity and Neuberger Berman, which won final approvals more than a year after they were allowed to start preparing their local units. Representatives for Fidelity and Neuberger Berman didn’t immediately reply to requests for comment.
Van Eck Associates Corp., Schroders Plc and AllianceBernstein Holding LP have also submitted applications to set up fund units, with more on the way. JPMorgan Chase & Co. and Morgan Stanley are still awaiting regulatory approval for their deals to buy out local partners.
While hurdles remain for global managers, ranging from distribution costs to a war for talent, the growth potential of the mutual fund market keeps expanding. In addition, the nation’s individual pension reform, unveiled last year, is estimated to bring 54 billion yuan in new inflows every year, according to Bosera Asset Management Co.
The international money mangers aren’t starting from scratch as they build out their fund businesses in China. Manulife, for example, already manages $12 billion through its joint venture, known as Manulife TEDA Fund Management Co.
The brightened market prospects may provide a further impetus to the firms’ forays. Although many global companies “wouldn’t touch China” in early 2020, they “turned 180 degrees” after seeing BlackRock win approval in late August that year, and after JPMorgan’s local fund partner agreed to sell, according to Alexander.
“Within a week, our phones and emails were bombarded with dozens of primarily US-based firms wanting to know how they could aggressively move on China,” he said, declining to name the companies. “Global groups know too well that the China market is one, if done correctly, that can honestly move the needle on a firm’s top and bottom-line performance.”
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