China's securities regulator has suspended the launch of new mutual funds 'for a few months' in a bid to cool down the red-hot stock market, according to sources.
The doubling of assets under management at mainland mutual funds to more than US$110 billion in just the past six months has been one of the key drivers of the huge jump in the mainland stock market.
The Shanghai Composite Index closed yesterday at another record high of 2,825.58 points, up 0.63 per cent from Tuesday, after rising 130 per cent last year.
'This market is so crazy now and mutual funds are required to start buying shares within 10 days of launching, which obviously pushes up stock prices,' one source said. 'So the China Securities Regulatory Commission has stopped approving new funds for now.'
There are more than 10 funds awaiting CSRC approval and three small funds - issued by Baoying Fund Management, Guotai Junan Allianz Fund Management and Lombarda China Fund Management - that were approved previously are finishing their initial public offering process.
'By suspending new fund IPOs, the government is probably trying to ensure an orderly rise in the market rather than the current frenzied pace,' JP Morgan chairman of China equities Jing Ulrich said. 'It could also partly be to help protect the banking industry, which has seen a lot of money coming out of savings deposits and into equities and mutual funds in recent months.'
At the end of November, there was 33.8 trillion yuan in cash and bank deposits in the mainland mostly earning less than 3 per cent annual interest.
