Some investors are shying away from Chinese equities and have begun pulling out of Qualified Domestic Institutional Investors (QDII) funds following the recent volatility in Chinese stock market.
Data from the Asset Management Association of China shows that total QDII fund value fell 10% to 55 billion yuan at the end of August compared to 61.1 billion yuan at the end July.
In the last few weeks Manulife Teda and Fortune SG both liquidated their funds due to poor performance. This would be the first time since 2011 that QDII funds had been liquidated.
Manulife’s Teda fund in particular recorded -6.33% performance over the past 3 years and shrunk to below 50 million yuan, effectively placing them below the minimum fund size set by the Chinese regulator.
QDII funds are not the only ones affected. Earlier this month China-based Chengsheng Fund Management announced that it was planning to liquidate its exchange-traded fund (ETF), SSE Market Value Top 100 Index ETF due to continued shrinking of the fund’s assets. The ETF’s mid-year report revealed that the fund had 20.4 million yuan net asset value at the end of June. If approved, the ETF would be the first in China to be liquidated.
Although recent Chinese uncertainty has negatively impacted QDII funds, it could also mark the rise of MRF (Mutual Recognition of Funds) funds that were just introduced three months ago to allow further two way flow of capital between Hong Kong and Mainland China.
According to a market comment from consulting firm Z-Ben Advisors “FMC QDII funds will continue to be liquidated and replaced by better-managed MRF funds.” The firm also highlights the importance in timing for the next few months for MRF funds. They recommend launching between October and mid-November 2015 to capture the interest from mainland investors for new products and to take advantage of the MRF fund push from Chinese big banks.
It’s been over a month since China’s “Black Monday” when the Shanghai composite index dropped 8.5% in August and still Chinese markets haven’t been able to climb to the levels they were earlier in the summer when the composite broke 5000 points. As of September 30 the index was just over 3000 points.
