(Bloomberg) — China’s 170 million individual stock traders are doing something unusual in 2020: they’re entrusting their money to the professionals.
Retail investors bought 487.7 billion yuan ($71.4 billion) worth of stocks through managed funds the first half of this year, more than the 340 billion yuan they invested directly in the market, according to data from Kaiyuan Securities Co. That’s in stark contrast to 2015, when individuals helped stoke a massive bubble by funneling 2.2 trillion yuan through their trading accounts — or just under double the amount invested in fund products.
The shift shows a change in how professional investors are perceived in China. Funds there are often called out for their preference for lower-risk blue chips that generate lower returns, avoiding small caps where tripling your money in three weeks is not unheard of.
But in the first half of this year, stock funds beat the large-cap CSI 300 Index by 21 percentage points, according to data from Industrial Securities Co. calculated by Bloomberg. That follows outperformance in 2019, lending the funds further credibility.
Joyce Chen, a 33-year-old financial sector worker in Shanghai, said she’s been boosting her stock-fund investments after she first piled 50,000 yuan into them in April 2019. She now has about 800,000 yuan in equity funds.
“Bank deposits are out of the question, returns on property investment are too low, bond assets aren’t attractive,” said Chen. “I’m not good at trading stocks, which leaves me no better option than equity mutual funds.”
Supported by the stock rally earlier this year and the stellar performance of fund products, Chinese fund management companies sold a total of 428 equity-focused new mutual fund products for a record 1.05 trillion yuan as of Aug. 28, according to data from China Galaxy Securities Co.
China Funds Trounce Market, But Clients Are Still Leaving
In a market that has long been dominated by speculative retail investors, who are usually blamed for triggering huge volatility, Chinese regulators have been actively promoting the development of institutional investor products in an effort to avoid a repeat of the 2015 stock market boom-and-bust.
The China Securities Regulatory Commission in late August revised rules to supervise sales agencies for mutual funds, in a bid to further strengthen the protection of investors’ rights and interests. Last month, the regulator approved BlackRock Inc. to be the first foreign company to set up a wholly-owned mutual fund business in China.
In an illustration of demand for retail products following stock indexes, the CSRC last week gave approval for four companies to offer exchange-traded funds to track the Star 50 Index.
“The A-share market will gradually enter the era of institutionalization. This is a golden age for the mutual fund industry,” said Yang Delong, chief economist with First Seafront Fund Management Co. “Retail investors will become increasingly aware of the need to return to fundamental research.”
For investors like Wang Leran, who works at a state-owned company in Beijing, returns of around 30% this year are a good incentive to remain in stock funds. “I will definitely continue to invest in them,” he said.
“I feel more confident and comfortable giving my money to fund managers to invest than buying stocks by myself.”
(Updates with ETF detail)
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