Equity funds hit by crash

By Wang Lan (China Daily)
Updated: 2008-08-30 10:12

The Chinese stock market crash since the peak in October 2007 has wiped out about half the net asset value of the equity funds that were once the de facto safe haven for many thousands of small investors.

A pedestrian passes a fund management company's billboard Beijing. [Luo Wei]

The combined assets of 364 funds managed by 59 fund management companies fell 1.08 trillion yuan in the first six months of 2008, compared with a surplus of more than 1 trillion yuan at the end of 2007, according to figures compiled by TX Investment Consulting Co based on companies' interim reports.

Losses of equity funds amounted to 695 billion yuan and that of hybrid funds totaled 292 billion yuan. Meanwhile, closed-end funds posted a loss of 67.6 billion yuan.

The loss of all stock-linked funds, consisting of equity funds and some hybrid funds, accounted for 97.52 percent of the total loss.

In addition, QDII funds also posted a loss of 24.7 billion yuan, resulting from the poor performance of many overseas markets after the outbreak of the US subprime credit crisis.

Zhou Liang, head of investment and advisory, China, Thomson Reuters, said that losses were to be expected in the volatile investment environment in nearly all equity markets in the past months.

Investors should not place the blame solely on the fund managers who have actually outperformed the stock market, albeit by a small margin, he said.

Instead, investors should be aware of the potential risks in equity investment, Zhou said. "Many retail investors used to regard funds as a safe capital refuge and pumped more and more money into equity funds even when the market was obviously overheated when the lead indicator hit the historic high in excess of 6,000 points last October," he said. In the rush to cash in on the bull run, "many investors turned a blind eye to the risks", said Zhou.

To Zhou and others, Chinese fund managers had not acted "inappropriately or irresponsibly" as some investors have charged. The rate of decline in fund assets was actually lower than that of the index.

The CSI300 index fell an aggregate 47.7 percent in the first half of 2008, while the combined value of all funds depreciated 42.8 percent in the same period.

Much of the losses so far are on paper only because of a relatively mild redemption rate. Figures based on fund interim reports show that the book value loss in funds totaled 961 billion yuan in the first half of 2008, accounting for 90 percent of the total posted loss.