Mainland China’s asset management market will be bigger than Hong Kong as soon as next year. Or so say Cerulli Associates, who estimate that by 2004 retail assets under management in China will stand at US$26.7 billion, while in Hong Kong, retail fund assets held by local investors – not simply cross-registered for sale in the Special Administrative Region – will stand at US$25 billion.
Ceruli says that China’s retail fund industry, which at the end of 2002 had US$16 billion in assets under management, is expected to enjoy a five-year compound annual growth rate (CAGR) of 24.3 per cent, implying it will expand to US$48 billion in that five year period. In contrast, Hong Kong, which has the oldest and most established retail asset management marketplace in the region outside Japan, is only expected to show a five-year CAGR of 8.4 per cent, taking it to an estimated US$32.5 billion in 2007.
Cerulli says that a large portion of China’s mutual fund assets come from institutional investors such as insurance firms and pension funds such as the National Social Security Fund (NSSF). Its growth projections assume that insurers will reach their maximum mutual fund investment limit of 15 per cent (currently they are estimated to be at around 5 per cent). Ceruli also believes the NSSF, which is allowed to invest up to 40 per cent of its assets in mutual funds, will reach a 25% exposure by 2007.
However, Cerulli expects retail investors to play an important role in the development of the mutual fund industry in China. It estimates that mutual funds in China now account for about 1.5 per cent of total household financial assets in China, a figure that is expected to rise to about 3.2 per cent by 2007.
Banks are expected to be the main engine of distribution of China’s open-end mutual funds, and Cerulli believes they already account for as much as 86 per cent of open-end fund assets under management, a figure that could fall to about 75 per cent by 2007. The Chinese financial regulator, the China Securities Regulatory Commission (CSRC), has permitted stockbrokers to sell mutual funds, but in the long term Cerulli believes banks are likely to maintain their dominant position.