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In a surprising turn of events, Chinese retail investors are steering clear of mutual funds, expressing dissatisfaction with the underwhelming performance of their once-preferred investment tools and opting instead to accumulate cash. Recent data from consultancy Z-Ben Advisors Ltd. reveals that the amount of money raised by mutual funds in China this year has plummeted to the lowest level in a decade. The 152 billion yuan ($21 billion) worth of new portfolios issued up to the end of November is approximately half of last year’s total, marking the third consecutive annual decline. This stark contrast is a notable departure from 2020 when retail investors eagerly entrusted their savings to professional stock pickers.
One key factor behind this shift in investment behavior is the hesitancy among households to take on additional risk in the face of post-Covid uncertainties. Concerns over employment stability and declining property prices have prompted investors to prioritize early mortgage repayments and cash savings. Simultaneously, the benchmark CSI 300 Index is on track for an unprecedented third consecutive year of losses. Foreign funds have been selling at levels unseen in the past, and government policies are perceived as inadequate or ineffective.
As of the end of November, aggregate household savings reached a record 134.6 trillion yuan, including an additional 14.7 trillion yuan accumulated this year. Despite this substantial savings pool, the decline in mutual fund investments is striking. The amount raised is comparable to the levels observed in 2014 during the market doldrums that preceded the 2015 stock crash. However, the onshore equity market is now nearly three times its size from nine years ago, highlighting the significance of the drop. The funds raised through November are also less than the total for a single month during more bullish years.
Investor disillusionment may also be directed at professional fund managers, as indicated by a 16% decline in a gauge of stock-focused mutual funds this year, according to China Securities Index Co. This compares with a 14% drop in the benchmark gauge.
Notably, at least a dozen mutual fund products failed to launch this year after falling short of the target subscription amount, according to local media reports. For instance, a stock fund planned by Zheshang Fund Management Co. collapsed as it couldn’t raise the minimum 200 million yuan within a two-month span, as disclosed in a filing this month.
Wang Lu, an analyst at the Funds Assessment and Research Center of Shanghai Securities Co., suggests that mutual fund companies can only do so much to address the situation. He notes, “Three years of losses in stocks are rare even in a global context, and unless there are market returns next year, the only way to address this issue is to improve market confidence.”
