China News: Investors cash out of rising stock market
Credit Suisse Group, Schroders Plc. and other companies that manage stock funds invested on the Chinese mainland face a dilemma: though returns are up, their assets are down.
Schroders'joint-venture fund shrank to 2.5 billion yuan (US$310 million) from 4.9 billion yuan in the fourth quarter, even as the units gained 8 percent in value, according to the fund's quarterly report. Assets in Credit Suisse's China fund fell by 10 percent as the units rose 5 percent in value.
Domestic investors, who have had to weather slumping stock prices over the past five years, have been tempted to take profits from a recent rally. The Shanghai and Shenzhen Composite Indexes are the world's worst performing stock benchmarks since 2001.
"We've lost assets because our performance was good,'" said Shen Xuefang, a strategist with Bank of Communications Schroder Fund Management Co. "Many Chinese fund investors, especially individuals, have a short-term view. Stung by losses of the past few years, they're taking profits even though the outlook remains attractive."
Chinese stocks have rallied 15 percent since December on optimism that government steps to bolster the market are working. In July, the government more than doubled the total quota available under its so-called qualified foreign institutional investor (QFII) program to US$10 billion. It also suspended new share sales as it began to dispose of nontradable shares, easing concern it would flood the market with unwanted stock.
A bull market has started and 2006 could be a turning point for Chinese equities, said ICBC Credit Suisse Asset Management Co. in its quarterly fund report. China's low stock valuations, appreciating currency, low interest rates and adequate liquidity will support further market growth, the venture said.
Some local investors take a different view.
"It's time to redeem funds now, especially if your investment has turned from a loss to a profit," said Jack Ni, who manages investments at China Aerospace Sciences & Industry Corp., a maker of weapons and missiles systems. "It would be safer to put money in bank deposits or bonds."
A survey released in December indicated that about 77 percent of stock investors lost money on the stock markets last year, Xinhua reported.
The Shanghai Composite has dropped 38 percent in dollar terms since Jan. 1, 2001, while the Shenzhen index has slumped 50 percent over the same period, making it the worst performer of 78 primary stock indexes in the world.
Many funds that have had losses "have just began to show profits on the recent rally," said Huang Xiaoping, a Shenzhen- based analyst at Morningstar Inc., a U.S. funds rating agency. "Many Chinese investors are trading in funds the same way as they trade stocks, whereas in the United States, investors would take a longer-term view."
The government has been encouraging the development of the funds industry to bolster its US$335 billion stock market. Domestic banks last year were allowed to set up fund-management units in a move aimed at boosting the country's capital markets.
Bank of Communications Ltd., China's fifth-largest lender, raised 4.9 billion yuan in September in its first mutual fund with partner Schroders.
In the same month, Industrial and Commercial Bank of China, the country's biggest bank, raised 4.3 billion yuan in its maiden equity fund with Credit Suisse.
"Funds set up by banks will attract many short-term retail investors," said Shi Shile, a marketing manager at Fortune SGAM Fund Management Co. "So, it's not unusual to see big capital outflows in the first few months."
The mainland now has 52 fund management companies, including 20 joint ventures. They had raised about 500 billion yuan by the end of January, according to the China Securities Regulatory Commission.
AI
Market Data 
Markets 
