More on buying Chinese mutual funds

on Thursday, 25 April 2013. Posted in ,
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WHAT THE BANKS SAY?

yuan investing“What can I do with my RMB?”

We now have to change the answer to the most commonly asked question; “What can I do with my RMB” since now, resident foreigners can buy funds through Chinese banks.  For a long time, the only overseas options used an investment quota into the Shanghai “A” share market, like the ones we carry.  To check out the new market, we decided to give the banks here in China a quick call and see if they had implemented the new rules yet, and how.

We got our Chinese assistant to do a quick call around on behalf of her foreign boss.  When we asked the banks, “Can a foreigner now buy funds”, the answers we got as of April 23, 2013 were:

Bank of China – No, not yet

China Construction Bank – No

China Merchant Bank – No

ICBC – Yes – see list of funds online.  All you need is a passport.

China Communications Bank – No

Bank of Agriculture – From May 12th you can.

HSBC – No, we can’t sell funds to anyone.

Standard Chartered – No, we can’t sell funds to anyone.

Why the wait?

It seems strange to us that it is not yet possible at several Chinese banks.  Perhaps the branches haven’t yet got the memo since implementing the change shouldn’t be difficult.  The IT infrastructure is already established and fund accounts for Chinese have existed for several years.  Perhaps they are worried about putting foreign names into a system build for Chinese names.  Or perhaps management just doesn’t see it as an important matter to communicate and staff don’t know.  It is hard to tell.  Still there are options already out there, so let’s look at what to do.

What’s up with the foreign banks?

In a tradition that China stole from Japan (shhh don’t mention that though) China uses administrative measures to control, restrict and otherwise hamper overseas competition from taking significant market share from its domestic champion companies.  If you have been in China for a while working for a foreign company at a senior level, you’ll have seen this in action many times.  Licenses are possible, but the restrictions are heavy, the rules difficult to comply with or vague and waiting time extensive.

Foreign banks also face the “one at a time” rule from the CBRC, which prevents them from applying for more than one license at a time.  That’s a great way to slow things down.  If you think it hasn’t been successful because you see branches everywhere for foreign banks.  Think again.  At a recent China banking conference, a presenting analyst estimated that the foreign banking sector had a market share of 1.8% in China.  That’s not HSBC or Citi by itself.  That’s about 20+ foreign banks with a noticeable presence in China COMBINED.  Bank of China by itself dwarfs that number.  But we digress.  Back to buying funds.

What should I do if I’m buying?

Well it would help to read Chinese.  Chinese banks, even the foreign owned ones, are still set up to deal with Chinese only and foreigners aren’t so much an after-thought as completely forgotten.  The Chinese fund universe isn’t nearly as big as say the US or Europe with only 1,500 funds.  Still that is to be expected since the stock market itself is barely more than 22 years old.  Barely more than a teenager trying to find itself.

Useful facts to know

  • Take your passport in and open up a fund account “Ji1Jin1 zhang4hu4” 基金账户.
  • Chinese funds have a five digit fund code to identify them.
  • Fees on most funds seem OK with small entry charges usually of 0.5-1% on the funds we have seen and back end charges starting at 1.5% and declining over 5 years.   Lower is better.
  • Management fees mostly seemed in the 1-1.5% range, which whilst not as good as the average American mutual fund, are broadly in line with markets in Europe, Asia and Australia.
  • Look for funds that have at least a 1 year operation.  Given how new things are, asking for 10 years isn’t really possible.  Even 5 years will limit out many of the best funds.
  • ICBC has a pretty decent mutual fund supermarket online here, if you read Chinese. If not, then it will be pretty darn confusing.

I want China A share exposure and I want it in English!

We still think that an easier and more transparent way to invest in the Chinese market is with an overseas fund that has quota to access the Chinese ‘A’ share market and a clear track record and supporting material in English.  Some Chinese funds have international exposure (which you can access better elsewhere) and/or very inexperienced teams, and it can be tough to tell from public information available exactly what is going on, even if you can read Chinese.  We help foreigners buy mutual funds overseas including ones with ‘A’ share market exposure, so contact us to learn more on query@caterergoodman.com but we can’t help you buy Chinese mutual funds directly (sadly).

We write a more detailed view on different mutual funds in China in coming posts.

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