Foreign investor demand for A-shares surges
Expectations over the imminent linkage of the Shenzhen and Hong Kong markets has intensified investor demand for access to China. Data from the Hong Kong Stock Exchange showed a sudden increase in the demand for RQFIIs tracking A-Shares and ETFs for A-shares.
Moreover, the demand for the CSOP SZSE ChiNext ETF has soared since its launch on the Hong Kong Stock Exchange on 15 May. By 26 May, 85 million shares of the fund has been issued, an increase of 60 million in about 10 days.
Recently, China Securities Regulatory Commission and Hong Kong's Securities and Futures Commission signed a bilateral memo about the mutual fund recognition initiative starting from 01 July.
This is the next huge gate-opening after QFII, RQFII, the Shanghai-Hong Kong Stock Connect and the upcoming Shenzhen-Hong Kong Stock Connect. Moreover, China's A-shares have recently been included on some FTSE indices and MSCI will soon announce if A-shares will be included on some of their global indices.
Foreign investment in the A-share market has been on a bull run due to these initiatives, forcing some overseas institutions to take profit, but new money continues to flow in.
China Securities Journal 28/05/2015
China's asset management growth
A "new era of asset management" is coming in China and the industry is forecast to grow to RMB 100trn ($16trn) in five years from 60trn today, according to Zhang XuYang, chief manager of China Everbright Bank.
Zhang, who made the optimistic prediction while speaking at the TsingHua PBCSF Global Finance Forum, explained that China's social and economic changes are driving growth. First, the aging population will increase the demand for financial management. Second, the asset management industry's adoption of internet strategies will accelerate growth. Third, the disintermediation commercial banks are undergoing will force them to provide better services in asset management.
Shanghai-Frankfurt Stock Connect?
The Shanghai Stock Exchange is reportedly planning to cooperate with the Frankfurt Stock Exchange to establish a Sino-German stock market link in September.
The officials of the Frankfurt Stock Exchange refused to reveal further details, but confirmed the intention to collaborate based on the "Joint Statement of the First China-German High Level Economic and Financial Dialogue" signed in March 2015.
The statement encourages building joint stock exchange platforms in both countries. It also awards Deutsche Asset & Wealth Management Investment with an RQFII, giving the foreign institution the right to invest in the local securities market.
Germany's investment in China is higher than that of the US. The benefit of stock market collaboration is therefore very attractive for both countries.
Open-ended financial products gaining traction
Closed-end financial products still have the dominant market share in China, but open-ended financial products have significant traction, according to the recent annual report on the financial market from China's banking industry.
The value of mainland closed-end financial products reached yuan 5.24trn yuan ($850bn) in 2014 compared to 3.56trn yuan the previous year.
The net asset value of open-ended financial products also recorded a huge increase to 4.68trn yuan, marking 267% growth during the same period. The annual report highlighted this observation, recognising the trend as important. The report recommends open-ended financial products due to their transparency and flexibility, which would suit clients well.
The report also noted stable profit growth in financial management services, which even superseded the profitability in trust management services. This enlargement of financial management may be due to the China Bank Regulatory Commission's policy to eliminate non-standardised investment products.
China's asset managers need to understand their client base
Cai Esheng, the vice chair of the China Banking Regulatory Commission, criticised the lack of motivation to provide different investment products tailored to the varying needs of clients.
Speaking on the "China style" of asset management at the TsingHua PBCSF Global Finance Forum, Cai said the main providers of asset management services, such as banks and insurance companies, have not developed a wide variety of investment products to suit different types of customers.
The asset management industry in foreign countries, by comparison, makes an effort to tailor financial products according to their understanding of client preferences.
However, many clients in China do lack a clear plan for long-term investment and aim only to maximise short-term profit, he admitted.