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China’s Mutual Funds Move Focus to Commodities

Chinese mutual fund industry is focusing on developing investment products connected to local commodity futures in an attempt to fight oversupply in China’s resource sector, hoping that the plan will drive prices of raw materials up. The funds intend to expand their scope of interests beyond their traditional focus on stocks and fixed income. However, a government campaign to make the country’s mining industries and commodity markets more effective has brought hopes of a more sustainable recovery in prices of raw materials such as copper or iron ore.

Inflows from China’s mutual fund industry, estimated to have managed 8.4 trillion yuan ($1.3 trillion) by the end of 2015, could significantly boost liquidity in one of the world’s largest commodity futures markets, which had transaction values of about 136.5 trillion yuan in 2015. If successful, this would boost the pricing power of the top consumers at a time when Beijing is trying to strengthen its position in global markets. Fang Shisheng of Orient Futures in Shanghai commented that “Investors have a growing appetite to diversify their investment destination after the stock market crash, and believe commodities are good assets as China is pushing for capacity-cut reform that will be favourable for raw materials”.

In August 2015, Shenzen-based UBS-SDIC Fund Management introduced its first Chinese mutual fund product to invest in local commodities with other funds now awaiting their approval to pursue similar policies. “Commodities futures markets have been very hot these days while there are very few opportunities in other markets, so mutual funds are looking into commodities,” a manager with Wanjia Asset said.

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