Advisers shun volatile Chinese funds

Financial advisers are increasingly turning away from Chinese funds on the grounds that the market is too volatile, a survey by Cofunds has found.

Of the nearly 200 UK-based advisers surveyed, around half (47%) said they were pessimistic about China’s growth prospects in the short term. A quarter of advisers said they would not allocate any new capital to Chinese funds over the next six months, while 15% said they would decrease their allocations.

Just 2% said they would increase their allocation to China, the report found.

In the longer term, however, the mood is more buoyant. While 48% said they would not allocate new funds to China because the market was too volatile, 58% said they would stand firm and maintain their current allocations to China over the next six months.

Cofunds head of fund commercial Britt Holland-Ellice said: “Net sales for Chinese funds, as a whole, have tended to follow the Shanghai Composite Index very closely, indicating that investors are fairly active in the market and respond quickly to changes. It will be interesting to see what happens across the sector over the next few months, and how advisers play out the volatility, as markets continue to flatten. For now we stand by the assumption that new investment money is likely to stay closer to home.”

The survey follows the release of new data revealing the the level of capital flight from China. According to Institute of International Finance, $676bn left China in 2015. The flight of capital out of emerging markets in general is also still increasing, with IIF estimating EM funds saw  $3.6bn in non-residential outflows.

The People’s Bank of China said last week that its foreign reserves fell by US$107.9bn, its biggest ever monthly fall, the South China Morning Post reported.

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