Fidelity plans China fixed income product launch after targeting market debut with equity fund float in current quarter
- Beijing granted Fidelity permission to tap China’s US$3.7 trillion mutual-fund market through its wholly owned entity in December
- China’s mutual-fund market has grown at a compound annual growth rate of about 20 per cent over the past five years, according to Fitch Ratings
Fidelity International, which is currently working on its first equity-focused mutual fund product launch in mainland China, plans to follow it up with fixed-income products in early autumn, riding on China’s economic growth tailwinds and Beijing’s market friendly policies.
The international arm of the Boston-headquartered money manager is hoping to make its debut with the equity focused product in a couple of months and for this it is currently raising money from Chinese retail investors. It received permission from Beijing to tap the nation’s US$3.7 trillion mutual-fund market through its wholly owned entity in December.
“It’s a good time. We’re looking at a market that is going to be very open, and where private capital can work with fiscal policy and the authorities, to create some more dynamism,” Andrew McCaffery, Fidelity’s Global CIO, Asset Management, told the South China Morning Post in a recent interview.
“If you looked at 12 to 18 months ago, there were some very significant headwinds from a macro economic perspective, and those now have actually turned around.”
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China’s gross domestic product (GDP) grew by just 3 per cent last year, one of its worst showings in decades, squeezed by three years of Covid-19 restrictions, crisis in its vast property sector, a crackdown on private enterprise, and weakening demand for Chinese exports.
The central government set a modest target for economic growth this year of around 5 per cent during the annual session of its National People’s Congress in March.
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“I’m very much in the camp believing China’s economic growth will exceed the target. So [when they set a target of] around 5 per cent, it means 5 per cent plus to me,” said McCaffery.
The firm’s focus on China emerges as its peers BlackRock and AllianceBernstein also earned approvals for setting up wholly owned mutual-fund entities in the world’s third-largest market, after the United States and Europe.
China’s mutual-fund market has grown at a compound annual growth rate of about 20 per cent over the past five years, according to Fitch Ratings, and international fund managers have been vying for this fast-growing pie.
“Now concerns raised by investors last year can be seen in a clearer manner. The openness to develop growth, and a better understanding that if you’re developing your capital markets, you’re open to foreign investment. And I think all those elements are very much playing out now,” said McCaffery, who believed the launch was timely.
Beijing has sent market-friendly messages targeting both the domestic private-sector and foreign investors, as leaders try to shore up an economy battered by three years of Covid-19 curbs.
A positive signal was also sent by the return of Alibaba Group Holding’s founder Jack Ma, who ended an overseas stay of more than a year, last week.
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Last month, China’s new premier Li Qiang met a group of global CEOs on the sidelines of the China Development Forum in Beijing, pledging to give equal treatment to foreign investments and to facilitate trade and investment by removing government controls and urging them to “invest in China and take root in China”.
“China will open its door wider and wider,” Li told the meeting of executives, which included Bridgewater founder Ray Dalio, Blackstone CEO Stephen Schwarzman, Alliance Group CEO Oliver Bate, Apple CEO Tim Cook, Samsung Chairman Lee Jae-yong and Pfizer CEO Albert Bourla.
Once launched, Fidelity’s equity-focus product will be the third retail fund launched by a wholly owned foreign investment firm in mainland China, after BlackRock in 2021 and Neuberger’s in March.
There are more launches in the pipeline, McCaffery indicated.
“We have a very clear desire to build out different mutual funds,” he said.
“We are very keen to have equity to fixed income, and over time to add in other forms like small portions of equities with large amounts of debt in there or looking at cash plus type ideas.”
