China Flows Into New Stock Funds Plunge To Lowest In Decade

(Bloomberg) -- Chinese retail investors are turning their backs on mutual funds, disillusioned with their once-preferred investment vehicles’ performance and preferring to hoard cash.

The amount of money that mutual funds raised this year has plummeted to the lowest in a decade, according to data from consultancy Z-Ben Advisors Ltd. The 152 billion yuan ($21 billion) worth of new portfolios issued up to end-November is about half of last year’s total and marks a third consecutive annual drop. That’s a major shift from 2020, when retail investors rushed to hand over their savings to professional stock pickers.  

Households have been reluctant to take on more risk this year as post-Covid uncertainties over employment and declining property prices push them to prioritize early mortgage repayments and cash savings. At the same time, the benchmark CSI 300 Index is poised for an unprecedented third year of losses. Foreign funds have sold at levels unseen in the past, and government policies are deemed insufficient or ineffective. 

As of the end of November, aggregate household savings reached a fresh record 134.6 trillion yuan, including some 14.7 trillion yuan added this year. 

Still, the extent of the drop is revealing. The amount raised is on par with 2014, during the market doldrums that preceded the 2015 stock crash. But the onshore equity market is now nearly three times its size nine years ago. The amount through November is also less than a single-month total during more bullish years. 

Retail investors may also be more disillusioned with professional fund managers. A gauge of stock-focused mutual funds is down 16% this year, according to China Securities Index Co. That compares with a 14% drop in the benchmark gauge.

At least a dozen mutual fund products failed to start this year after not meeting the target subscription amount, according to local media. A stock fund planned by Zheshang Fund Management Co. fell through as it wasn’t able to raise the minimum 200 million yuan in a two-months span, according to a filing this month. 

Mutual fund companies can only do so much to improve the situation, said Wang Lu, analyst at the Funds Assessment and Research Center of Shanghai Securities Co.

“Three years of losses in stocks are rare even in a global context, and unless there are market returns next year, the only way to address this issue is to improve market confidence,” Wang said. 

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