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Mutual funds make beeline to ChiNext

By Li Xiang (China Daily)
Updated: 2009-10-30 08:10

Chinese mutual fund companies have swarmed into the country's newly launched growth enterprise board, or ChiNext, eyeing potentially quick profits even as the mutual funds industry itself reported $8 billion in losses during the third quarter.

The 28 companies, which start trading today on ChiNext, have so far attracted investments from 217 mutual funds in the new share subscription process for institutional investors, according to data from Shanghai-based Wind Info.

Filmmaker Huayi Brothers and Aire Eye Hospital Group are the two most popular ChiNext-listed companies that have absorbed investments from 105 and 104 funds respectively.

ICBC Credit Suisse Enhanced Income Fund holds the most shares in 23 ChiNext companies. According to Wind Info, each ChiNext company, on average, has attracted investments from 33.82 funds.

But the investments by mutual funds have not been evenly distributed, with more than 54 percent of Sichuan Jifeng Agricultural Machinery Chain Co's shares held by funds while the figure is just 2 percent for Shanghai Bestway Marine Engineering Design Co .

Analysts said mutual funds might have shown great interest in ChiNext due to the fact that most firms in the first batch are believed to have the strongest growth potential.

"The reason that institutional investors are showing great interest is that most ChiNext-listed companies are expected to perform well in the future," said Ge Xinyuan, an analyst at Guosen Securities.

Special Coverage: Launch of Growth Enterprise Board Related readings:  China's NASDAQ launched Fri afternoon  CRSC to launch ChiNext oversight division  GEB sparks different opinions among institutional investors  Main boards may feel little impact from GEB debut  Private equity investors are more confident about China deals

"It's possible that speculative capital will enter the market in the beginning but I don't think it will come from institutional investors," he said. "Institutional investors tend to be rational and pay more attention to the future growth potential of a company."

But some analysts pointed out that many funds are in fact just seeking short-term profit on ChiNext considering the recent potential risks and uncertainties on the main board.

China's mutual funds industry posted a loss of $8 billion in the third quarter, mainly hit by a 6-percent quarterly downside in the country's stock market. The industry has reduced holdings in the stock market by 3.31 percentage points to 80.15 percent during the third quarter.

"They are investing some of their capital on ChiNext for quick profits and to avoid the recent potential risks on the main board," said Zhang Hui, an analyst at Bohai Securities.

Zhang speculated that most institutional investors would not adopt a long-term strategy at least during the beginning of the trading.