China surpassed Singapore to become the second-largest market in the East Asian region, almost on par with Hong Kong, largely driven by the retail demand, according to Fitch Ratings senior director Alastair Sewell.
China's mutual fund assets totalled $1.3trn at the of end 2015 up about 4x since the end of 2011.
“Our expectation is that [mutual fund asset] growth is going to continue in Asia, driven by growth in China primarily. One factor is the middle class growing in China. Second, the saving rate is relatively high, and third, the penetration rate of the asset management industry is relatively low,” Sewell told FSA.
“On the institutional side, an important question will be if and when large assets from the national social security scheme will be invested in the [fund] industry and whether it will be allocated to asset managers,” he added.
Hong Kong has been the largest market in the region with mutual fund AUM of about $1.3trn at the end of 2015. But growth has been slowing and Hong Kong's market share in East Asia shrank to 31% in 2015, from 44% in 2011, according to Fitch.
"In East Asia, which includes China, Hong Kong, South Korea, Malaysia, Singapore, Taiwan and Thailand, mutual fund assets grew to to $4.2trn at the end of 2015 from $2.3trn at the end of 2011"
Sewell expects China is likely to soon surpass Hong Kong as the largest mutual fund market in Asia.
In East Asia, which includes China, Hong Kong, South Korea, Malaysia, Singapore, Taiwan and Thailand, mutual fund assets grew to to $4.2trn at the end of 2015 from $2.3trn at the end of 2011. Together the region represents 11% of the global market, up from 9% four years ago, the agency said.
However, the burgeoning asset management industry in China presents challenges for fund providers and investors, he said.
For fund managers, the challenge lies in maintaining a strong fit between the firm’s resources and capabilities with the volume of funds and assets it manages. As asset managers grow, they need to outsource office functions and this inevitably becomes bureaucratic, he said.
Investors face the challenge of identifying fund managers with the capacity to cope with the demands of rising assets under management, he said.
Regulatory issues also can be an obstacle.
“We think the rapid growth brings challenges as well, as it is necessary to ensure regulations that keep pace with [fund industry] development. Our focus is very much on [China's] governance framework to accommodate the growth.”