China overtakes UK to become world’s fifth-largest fund hub

China has leapfrogged the UK and France to become the world’s fifth-largest fund domicile, as the breakneck growth of its fledgling investment sector continues despite the coronavirus-induced recession.

Chinese funds increased their share of the global investment market significantly in the first three months of 2020, propelling the country from tenth to fifth position in a quarterly fund domicile ranking compiled by the European Fund and Asset Management Association and the US’s Investment Company Institute.

The country pulled ahead of established asset management markets France, the UK, Japan and Australia to seize 4.1 per cent of worldwide fund assets. At the end of last year, China accounted for 3.2 per cent of global assets, compared with the UK’s 3.3 per cent and France’s 3.7 per cent.

The US is the world’s largest fund domicile, controlling 47.9 per cent of the market, followed by Luxembourg with 8.8 per cent, Ireland with 5.8 per cent, and Germany with 4.6 per cent. The data is for open-ended, regulated funds, including money market funds, globally.

The shift underscores the Chinese fund market’s status as a rare bright spot at a time of significant upheaval for the global investment industry, which is reeling from heavy investor outflows and dramatic asset price decreases during the March market sell-off, and bracing itself for further volatility as the coronavirus crisis continues.

Top 10 domiciles of worldwide fund assets

Managers have long viewed China as the largest single growth opportunity globally, with the country’s pool of assets expected to increase significantly in line with its ageing population and expanding middle-class.

When considering funds, segregated mandates and other asset management products as a whole, China ranks as the world’s third-largest asset management market behind the US and the UK. However, Deloitte consultancy Casey Quirk forecasts it will overtake the UK by next year, while analysts at Morgan Stanley and Oliver Wyman expect the country’s asset base to rise from $5.3tn to $9tn by 2023.

Efama senior research director Bernard Delbecque said that the main reason behind China’s jump in the ranking was the fact that money market funds, which attracted strong flows during the March sell-off, account for more than 50 per cent of local funds. “That meant China suffered much less from the sharp drop in equity markets in March than most other countries,” he said.

Mr Delbecque added that China’s future position in the global fund ranking would depend on the evolution of stock prices and whether Chinese investors remained invested in money market funds.

However, data provider Broadridge said that growth prospects for the Chinese fund market remained strong, despite the uncertainty caused by the pandemic.

While Broadridge revised down its five-year growth projection for the Asia-Pacific asset management market by $1.2tn due to the crisis, it still forecasts that the region will grow 10 per cent each year until 2025, led by China.

Yoon Ng, director of Asia-Pacific insights at Broadridge, said that expansion in China was “critical” for global asset managers, pointing to opportunities created by the increased mobilisation of savings to investment products, strong culture of digital distribution and growing subadvisory opportunities. She noted that while most other Asia-Pacific markets suffered net outflows in the first quarter, China recorded $135bn of net sales.

Competition among global fund houses for a share of the Chinese onshore market is intensifying. In April, JPMorgan Asset Management spent $1bn to secure 100 per cent ownership of China International Fund Management, while Fidelity International recently applied for regulatory permission to establish a public mutual fund business in the country.

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