By Samuel Shen and Pete Sweeney
SHANGHAI (Reuters) - China's once-struggling mutual fund industry is riding high on the country's surging stock market, with new funds snapped up in days by investors who long shunned shares as too risky.
This marks a success for policymakers working to build confidence in equities and a relief for China's fund management industry. But the influx will keep the pressure on Beijing to prevent the rally from imploding. Collapses in 2007 and 2009 made many people swear off stocks for years.
In January and February, 75 funds, mostly equity-focused or balanced ones with both equity and bond investments were launched, raising nearly 110 billion yuan ($17.7 billion), according to Shanghai-based fund consultancy Z-Ben Advisors. It said 35 funds, collecting less than 50 billion yuan, were formed in the same period last year.
The market's huge gains - more than 50 percent last year and about 13 percent this year - have revived enthusiasm for mutual funds.
"People are rushing into mutual funds because many think it's just the beginning of an unprecedented bull market," said Mark Zeng, analyst at Howbuy Wealth Management, a Shanghai consultancy which helps mutual fund companies sell products.
REDUCED RISK
Brokerage Shenwan Hongyuan said the risk of investing in stocks has been reduced, due to expectations of more monetary easing ahead, buttressed by further reforms to state enterprises and a big shift of wealth from real estate to equity.
The brokerage says the Shanghai benchmark <.SSEC> could reach 4,500 points this year, 22 percent above Friday's closing of 3,691.10.
"The worst time for China's stock market is over, and there's high probability that the market will continue to rise," said Pan, a Shanghai office manager in his mid-40s who only gives his surname.
In 2014, Pan missed the market boom as his money was in bank deposits and money market funds. This year, he's entered mutual funds because friends who invested in property or wealth-management products (WMPs) "are all moving money into stocks".
Pan said that last week he shifted 5 million yuan into three equity-based mutual funds, and when another 5 million yuan in WMPs matures, he'll plough that in too.
He and others are responding to signals that the government is comfortable with the rally. The relaxation of government warnings about share bubbles, excitement driven by signs of incoming liquidity and the expectation of more have breathed life into a rally that showed signs of stalling in January.
QUICKLY SOLD OUT
Penghua Fund Management Co raised 3.74 billion yuan ($602.47 million) in just one day. Other funds slashed their subscription periods after quickly selling out.
Analysts estimate that up to 80 percent of China's stock transactions are by individuals, who have been reluctant to pay fees to mutual funds, especially given the generally miserable performance of Chinese indexes until recently.
But the rally is lifting their role. In February, their assets under management were 4.86 trillion yuan, up 37 percent from a year earlier.
Much money is going into technology and other growth sectors targeted by Beijing for support as part of its "Made in China 2025"industrial upgrade project. Da Cheng Fund Management Co plans to launch a balanced fund next month focusing on internet-related stocks, chasing an IT index <.CSI300IT> that's up more than 50 percent this year, while the once-favored real estate index is down 3 percent.
Some analysts do see risks, noting that the rally has been underpinned by unprecedented levels of leverage, thanks to liberalised margin financing tools. Beijing's monetary easing is aimed at discouraging capital outflows rather than providing aggressive stimulus, they warn.
Still, investors are encouraged that Premier Li Keqiang vowed to aid the economy if growth slows further.
($1 = 6.214 Chinese yuan)
(Editing by Nachum Kaplan and Richard Borsuk)
