Chinese equity funds attracting flows in Europe – Cerulli

Written by Michael Griffiths

26/05/2023

European investors have shown renewed interest in China equity funds since Beijing announced it was abandoning its zero-COVID policy, according to a report from Cerruli.

This comes as Europe-domiciled mutual funds and exchange-traded funds (ETFs) in the China equity sector have witnessed net inflows of €5.8bn over the first four months of 2023.

However, Cerulli also suggested that investor enthusiasm for the China trade has diminished. Flows into Europe-domiciled mutual funds and ETFs in the China equity segment were relatively strong during the first three months of 2023, totalling €3.6bn and €1.2bn in January and February, respectively, but in April they registered just €380m of net new money.

Fund selectors also reported pent-up demand at the start of 2023. Cerulli’s analysis revealed that 42% of the UK wealth managers and private banks expect increasing demand for emerging market equity funds, compared to 29% anticipating increasing demand for developed market equity funds.

Amid the diminishing flows, European investors in China equity funds favour active vehicles. By contrast, the report suggested the region’s investors in global emerging market equity funds opted for the passive route. Six of the 10 bestselling China equity funds during the first four months of 2023 are active mutual funds, whereas just one of the 10 bestselling global emerging market equity funds during the same period is an active mutual fund.

“The mixed outlook for China has arguably strengthened the case for active management, with investors believing they will benefit from more selective and flexible stock picking,” commented, Cerulli director, European asset and wealth management research, Fabrizio Zumbo.

“Another trend has been the popularity of funds investing in China A-shares. These onshore equities are more domestically focused and less likely to be impacted by US-China tensions.”

Zumbo added: “Future investor appetite for China equity funds is uncertain and could hinge on geopolitical developments, if not the direction of economic forecasts. Investors approaching this market are increasingly doing so with caution.”

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