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Funds reluctant in trading amid weak market

By Ding Qi (chinadaily.com.cn)
Updated: 2008-09-03 18:23

The trading enthusiasm of domestic fund managers dashed with the falling stocks in the first half, as most chose to hold their portfolios before seeing a substantial market recovery, the China Securities Journal reported on Wednesday. 

The paper quoted a survey by TX Investment Consulting Co which found that in the first half of the year, the turnover ratio of Chinese mainland’s stock investment funds shrank 33 percent year-on-year to 0.9814.  

The turnover ratio is the percentage of a fund's securities holdings that have turned over or been replaced with other holdings in a given period of time. Mutual funds with higher turnover ratios tend to have higher expenses. 

In breakdown, the turnover ratio of close-end funds dipped 2.92 percent year-on-year to 1.2099 in the first half, while that of open-end funds fell much deeper from last year’s 1.513 to 0.9662. However, the drop is not too large compared with the 63-percent drop in the turnover of all investors in the A-share market, according to the survey. 

Transaction willingness of medium and small-scale fund management companies contracted the most in the bearish market, the survey found. Taking China Nature Asset Management Co Ltd for example, funds managed by the company recorded a 16.0842 turnover ratio in the first half of 2007 when the benchmark Shanghai Composite index surged nearly 50 percent. While in the first half of this year, the ratio plunged 73 percent to 4.3079.

According to securities insiders, when stocks began falling from a historical high last October, most fund managers in the country lowered their trading frequency hoping to ward off market uncertainties. 

However, some investors argue that it’s the conservative investment strategy that makes fund managers hold their chips instead of dumping them decisively when stock dives occur. That is an important reason behind recent huge losses in the fund industry, they said. 

Earlier statistics from TX Investment showed the country's 364 funds run by 59 fund management companies incurred record losses totaling 1.08 trillion yuan ($157.9 billion) between January and June amid the 47-percent market slump. 

Given the huge losses, stock analysts anticipated that funds’ trading enthusiasm will continue to shrink in the second half of the year in a pessimistic market mood. However, once an upward momentum of the index is confirmed sometime in the future, fund managers will probably rush to change their investment portfolio, which will give turnovers as well as stock prices a quick boost.