Cerulli says that mutual fund markets in China and India now account for over 20 percent of the Asia ex-Japan market share.
India’s mutual funds industry has a history of over 40 years and accounts for over 9 percent of Asia ex-Japan mutual fund assets under management. In contrast, China’s mutual fund industry started late, in less than six years the industry has grown exponentially, and now accounts for over 11 percent of the Asia ex-Japan mutual fund marketplace.
China’s share is set to rise further and unless the recent pickup in pace in India’s industry is sustained. China is likely to account for a larger share of the two in the future. The two together account for one-fifth of mutual funds assets in Asia ex-Japan. Political conditions, macro economic factors, distribution dynamics, pension reforms, relative net management fees, and stock market volatility are some of the variables to be considered for pursuing business interests in either marketplace.
The report from Cerulli, ‘Asset Management in China and India 2006’, continues their ongoing analyses of mutual fund industries throughout the Asia-Pacific region. There is a lot of interest in the financial markets of China and India, and a growing interest in the asset management industries. Cerulli says that they examined the asset management industries in both China and India not just from the stand point of those international firms seeking a market entry strategy. They believe the analysis will prove hugely important for those firms interested in understanding the distribution landscape in both markets, as they continue to develop.
“Cerulli is one of the few international research houses to have conducted proprietary surveys of asset managers in both marketplaces, starting with China in 2004 and adding India in 2005,” says a spokesman from Cerulli. “The Cerulli proprietary asset manager surveys in both countries included questions designed to help us understand the relationship between asset managers and their primary distributors, the banks. This report also analyses China and India’s respective retirement provision systems and the opportunities they may provide asset managers over time; in addition, our analysts have significant qualitative analysis of the existing joint ventures in both countries.”
China’a mutual fund marketplace is expected to grow in the short term. 2004 stood out as a banner year for the industry, and 2006 continues this positive trend. Assets of open-end mutual funds grew from RMB 239.8 billion to RMB 385.6 billion in the year, a growth rate of over 60 percent, even if at the halfway point in 2006 total AUM for this segment fell to RMB 344.1 billion, while the share of closed-end funds which had been stagnant for several years rose to a high of RMB 119.2 billion. The bulk of open-end funds continues to be supported by institutional investors, which include insurance firms, national and state government-owned firms, and pension funds like the National Social Security Fund, created in 2000 to replace the threadbare state retirement system.
In 2005 Indian equities grew more than 30 percent year-over-year, and the rise continued well into 2006 until the stock market correction. In India the divide between retail investors and institutional investors quite closely marks the divide between fixed-income assets and equity assets. This is a policy issue, and one the Indian government is aware of, but has done little about yet. It has been a busy period for product development in the Indian mutual fund marketplace in 2005 and will continue through 2006. For one thing, to further exploit the property boom in India for local investors and provide the Indian property market with a bigger investor base, SEBI has approved guidelines for real estate mutual funds (REMFs) at the end of June 2006, which would allow domestic retail investors to invest in real estate development and related companies.
Other developments include gold ETFs, fund of funds, and portfolio management services that have been made available to wealthier clients.
2006 saw a further push in Enterprise Annuities development to begin addressing the country’s pension deficit, which according to the Ministry of Labor and Social Security stand at over RMB 2.5 trillion. Corporate annuities from 24,000 profit-making enterprises across the country have risen to RMB 68 billion, at the end of the third quarter of 2006. There is growing recognition that the old defined benefits plan in India is becoming increasingly unsustainable and the New Pension System (NPS) is the first serious effort to a long-term resolution.