China will launch its two first big mutual funds today in a move analysts say should win the confidence and harness the savings of ordinary investors by bringing stability to the countrys volatile stock markets.
The new funds mean the birth of a totally new financial tool in China, an analyst with China Southern Securities, one of two approved fund management companies, said yesterday.
The new funds will absolutely be welcomed by ordinary Chinese people, said an analyst with China Guotai Securities, the second approved manager.
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People who have little knowledge of the stock market will be able to invest their money in these funds and have confidence they are being well managed, he said.
The two new funds will each be capitalised at 2.0 billion yuan ($240 million) with a maturity of 15 years.
Both will be closed-end funds, meaning they will have a fixed number of investment units, each of which will be priced at 1.01 yuan.
In launching the new mutual funds, Chinese authorities hoped to tap the huge pool of idle individual savings parked in bank accounts as the new funds must concentrate investments in local-currency denominated A shares, as well as bonds.
China already has a number of smaller mutual funds but they play only a tiny role in share trading because of limited capital
The new funds were seen shifting the markets emphasis from a reliance on individual investors, and developing a rational, long-term institutional investment industry.
Strict regulation of the funds also aimed to limit investment risk in what had long been a volatile and speculative environment controlled by very few players, analysts said.
Chinas share market indices skyrocketed 100 per cent between April and early December 1996 before falling 30 per cent in three weeks after an official warning against overheating.
The markets surged again in the first four months of 1997 before once again falling dramatically when Beijing issued further cooling measures.
The official Shanghai Securities News yesterday told the new fund managers: Dont put all your eggs in one basket.
The newspaper told the fund managers to invest in both big and small capitalisation shares and to let people know just who they are.
The announcement early last week of the March 23 launch of the mutual funds had seen some immediate profit taking in A shares. Brokers said the new funds would divert investors away from existing shares, limiting future rises.
But the news had already been factored in, they said. The new funds would target market-dominating blue chip A shares, the analysts said. Basically, the blue chips with large capitalization will be their first choice given their steady performance, said an analyst.
Others said Chinese authorities have had a keen eye to the wild swings on regional markets stemming from the financial problems engulfing Asia.
But Beijings industry watchdog, the China Securities Regulatory Commission (CSRC) has promised to pay close attention to the management of the new funds.
Their operations will be stable with returns that generally will be higher than those of bank deposits and state debt, a CSRC official was quoted in the official press as saying last week.