The outlook of the East Asian’s mutual funds industry continues to be bright following an impressive 2015 run that saw industry assets in East Asia grow to US$4.2 trillion in 2015, or 11% of the global mutual funds market.
The East Asia market has doubled over four years from US$2.3 trillion in AUM. Within East Asia, China’s mutual funds industry led the way becoming the second largest mutual funds market in the Asian region with a 2015 AUM of US$1.3 trillion.
“Chinese money market funds (CMMF) has been a main contributor for the growth of Chinese mutual funds in recent years. CMMF has experienced substantial growth since the second half of 2013 driven by the demand for e-commerce money market fund,” explains Li Huang, associate director at Fitch Ratings. “The growth of Chinese mutual funds is supported by the expanding middle class, high savings rate and large amount of bank deposits. The mutual recognition scheme [MRF] is still at early stage and it did not drive the growth last year.”
Yet despite the growth within China, the development of the mutual fund market in the country also is a wake-up call for fund managers scale up or risk losing out on new clients. “Chinese asset managers are aware of the challenges and some of them are working on it by enhancing the IT platform/operations and reinforcing resources,” notes Huang.
On the other hand Chinese investors also face the challenge of picking fund managers that have been able to keep pace with the rapid developments in the industry. “As the majority of [Chinese] investors are retail, it is still challenging for them to differentiate,” says Huang.
It will be interesting to see how far the mutual funds industry in East Asia can grow considering governments within the region have pushed forward to boost cross-border investment activities via schemes such as the MRF and Asia Regional Funds Passport. But, the region still has a while to go to possess a system similar to the European UCITS model. When asked what could sustain the growth of the East Asian mutual funds market, Huang listed “regulation, high standard of governance and transparency of the asset management companies and a less volatile market.