Risk curbs on asset management evoke claps

Analysts have applauded China’s new policy on the asset management sector that aims at curbing risks in the financial system by raising thresholds for entrants and strengthening regulations over nonstandard products.

In the short term, they said, shares of companies in certain financial services could fluctuate, but the move will bolster investor confidence in the long run.

The central bank issued the guidelines on Nov 17 to regulate asset management businesses more strictly.

This is part of the government’s latest effort to rein in the risky shadow banking sector which had been channelling money into Chinese stocks, bonds and property.

At the end of 2016, the collective outstanding volume of the asset management business was 102 trillion yuan ($15.37 trillion).

The draft guidelines will unify rules covering asset management products issued by all types of financial institutions and will set leverage ceilings on such products, but won’t have an immediate impact. There will be a transition period until June 30, 2019.

“Investors were hunting for bargains in smaller caps and ChiNext stocks,” said Dai Ming, a Shanghaibased fund manager with Hengsheng Asset Management Co.

“Some people may have come to realize that the new rules are not much different from what authorities had been doing to cut risks. Financial institutions will be wellprepared given the long grace period. If the markets tumble further, that may invite the ‘national team’ to step in and buy,” said Hong Kongbased Ben Kwong, executive director at KGI Asia Ltd.

Investors see the decline of index components as opportunities to buy.

“The proposed new regulations may raise some short-term concerns but would help attract foreign capital inflows as they would make the market better in the long term. So it’s not entirely negative,” Kwong said.

China’s sovereign bonds showed muted moves on Nov 20, with the benchmark 10-year yield rising one basis point to 3.97 percent.

The proposed new regulations... would help attract foreign capital inflows as they would make the market better in the long term.” Ben Kwong, executive director at KGI Asia Ltd

The yield has surged 24 basis points since the end of the 19th National Congress of the Communist Party of China on Oct 24 amid rising inflation and concern that policymakers will intensify a deleveraging campaign.

A research note from Guosen Securities said that the proposed plan aims to direct capital from nonstandard ones to standard products, which would benefit the stock and bond markets.

A note by the macroeconomic research team from CITIC Securities said strengthened regulations on cash pooling and leveraging would impact the secondary market, particularly private funds.

“However, there are no strict limits on private equity and venture capital in the proposed plan, which would leave ample room for their further development and help growth of direct investment.”

Zizheng Wang, portfolio manager at UBS Asset Management, said in a statement that from a long-term perspective, the money manager “sees sustainable growth in the Chinese economy and opportunities in the A-share market.”

Wang, who will manage a newlylaunched onshore China equity fund for UBS AM, said he sees “attractive investment opportunities” in “fairly valued” Chinese bluechip stocks, as well as industry leaders with growing international competitiveness.