 Fund sector suffers losses in first half of year
By Wang Ying (China Daily)
Updated: 2008-09-27 09:20 SHANGHAI: China's mutual fund industry posted a huge loss equal to 1.08 trillion yuan in the first half of the year, in which equities-oriented funds generated 1.05 trillion loss amid the tumble of the stock market, statistics show. The figures, issued by TX Investment Consulting Co, a securities statistics provider, are based on the first-half reports of 59 fund firms, which are running a total of 364 funds. Boshi Fund Management Co reported a loss of 70.7 billion yuan, taking the lead of all 59 firms. Zhao Xinge, professor with China Europe International Business School (CEIBS), said what took the gloss of the funds that had made huge profits last year was the stock market calamity, in which the Shanghai Composite Index nosedived from last year's record high 6,124 to below 1,900 on September 18. As a direct reflection on the bourse performance, the equity funds are feeling most the blow from the stock slump.
Another factor that resulted in the fund losses is the slack management of the nascent industry in China. Many Chinese fund managers always take risks of chasing higher profits, leaving their investment decisions more exposed to the high volatility of the stock market. Albeit with their aggressive investment decisions, China's fund managers are reaping more bonuses than their western counterparts due to the absence of a well-devised mechanism on bonus distribution and industry supervision. Owing to massive losses in fund sector, experts warn that a possible industry shake-up is around the corner. "It's not bad for the fund industry to have a restructuring. The government watchdogs should not do stupid thing such as to protect small and weak companies from going bankrupt or being acquired," Ding Yuan, professor with CEIBS stressed. "Let the market choose which to survive and which to die. This will help stabilize the mutual fund in the long run," Ding added. At present, many fund managers are mindful of a further slump of domestic stock market, but their hands are tied due to related investment restrictions. According to domestic rules, equity funds have to maintain a minimum investment level, which means a fund has to put 65 percent to 70 percent of its total capital in stocks. Although the sharp drop of domestic stock index shows no signs of a rebound, some analysts believe it is a good chance for fund managers to buy in more blue-chip stocks at low price. "As long as we believe in the bright future of a stronger China economy, we have no excuse to lose faith in its stock market. A smart investor will show great patience and courage in waiting for a better change," an analyst with Hua An Fund said. Some experts pointed that funds' shrinking value had taught a lesson to many rookie investors. The most important thing to bear in mind is to control risks. "No matter how the fund salesman try to persuade you, remember that no one can guarantee a stable return," Ding with CEIBS, said. It is also recommended by analysts that investors may shift their focus from traditional equity fund products to fixed-income fund, bond-oriented fund and money market fund, which is the only fund product that makes profit, realizing a margin of 1.297 billion yuan in the first half of the year. (China Daily 09/27/2008 page25) |
