(Yicai Global) Dec. 11 -- A mass of liquidations has erupted among Chinese mutual funds amid profound changes in the country's A-share market precipitating a sustained downturn in domestic stocks this year.
The funds liquidated have been a record-breaking 621 this year as of today, while only 176 dissolved last year. The tally this year is nearly twice that of the past three years combined, per statistics of state media the Beijing News.
Those 'mini funds' with a smaller size have a higher risk of dissolution in a bear market, insiders note, adding that companies incur various costs in operating a product and opt to liquidate it when a fund's scale is too small to cover these outgoings.
One fund that recently bellied-up presents an apt example, a hybrid securities investment fund of Chinese-German joint venture CPIC Fund Management, which triggered procedures to terminate its contracts as the JV announced it will liquidate it since it has netted less than CNY50 million (USD7.2 million) for 20 straight working days, the firm announced yesterday.
China has implemented a registration system for mutual fund approval since 2014,spurring a great increase in the number of fund products, per statistics. The country now has 5,108 mutual funds, including 856 stock funds and 2,257 hybrids, with competition among the various players becoming increasingly savage, statistics show. Investors' huge redemptions, especially when the market is slack, often induce a large decline in a fund's net asset value, thus generating liquidation conditions.
Fund companies generally return money to investors based on the net value of the fund in the last trading session after liquidation. Therefore, winding up a fund does not saddle investors with huge losses.
The Chinese stock market has suffered a serious fall this year, with the Shanghai Securities Exchange Composite Index recording a persistent decline from 3,314.03 points at the start of this year to a nearly four-year nadir of 2,449.20 points in October.
The index closed at 2,584.58 points at yesterday's dinner bell and is down by over 20 percent thus far this year.
Editor: Ben Armour