China’s assets under management in the funds industry may top $1.4 trillion (Rs61.6 lakh crore) by 2016, making it the world’s fastest-growing market, McKinsey & Co. Inc. said.
The nation’s $156 billion of managed assets will swell an average 25% a year in the coming decade, the New York- based consulting company said in a report on Wednesday.
Growth in China will be spurred by consumers seeking higher returns than offered by low-yielding bank accounts, the report said. The market will also be helped by overseas-listed Chinese firms returning to sell shares at home, bringing with them higher corporate governance standards, said Stephan Binder, a Shanghai-based McKinsey principal.
“This market is still at very early stages,” he said. “I believe there are great growth opportunities.”
Assets under management in China equalled about 8% of the country’s gross domestic product in 2005, below the 214% in the US, 24% in Taiwan and slightly ahead of India’s 7%, McKinsey’s figures showed. Last year, Chinese citizens kept about 79% of their personal financial assets in cash and in banks, where one-year deposits yield 2.52% a year, because of a lack of investment alternatives, McKinsey said.
The consultant expects the ratio to decline to 60% by 2016 as Chinese spend more on pensions, mutual funds, life insurance policies and bonds, and stocks, leading to more business for asset managers, said Joseph Ngai, a Hong Kong-based principal at the firm.
Money managers will collect $2 billion to $3 billion of annual profits by 2016, Binder said.
Of the more than 50 asset managers in China, at least 20 are joint ventures with Chinese companies that command about two-fifths of the market. That ratio is much higher than in the insurance and banking industries, where international companies faced more restrictions in the past, Binder said.
Looser curbs on cross-border investment will also help drive demand for managed funds while making expertise in international markets more important, according to the report. China has restrictions on stock purchases abroad as well as investment in mainland markets by overseas funds and individuals.
China may allow individuals to invest abroad, Hu Xiaolian, director of the Chinese State Administration of Foreign Exchanges, had said on 8 March. Hu has also said the government may widen its quota for investments in China by foreign institutional investors, the so-called QFII scheme.
At the end of last year, the 10 companies with the most assets under management shared 57% of the market. Three of them already had foreign investors, including those partly owned by Credit Suisse Group, Deutsche Bank AG and Amvescap Plc.
More than three-fifths of China’s asset managers still handle less than $800 million, which McKinsey considers the break-even threshold for profitability.
As the industry grows, managers still face challenges, such as a distribution bottleneck for fund sales. The four largest state-owned banks controlled 87% of the fund custodian market last year and more than half of mutual fund sales in the country, it said.