Date
25 May 2017
Industry players say the market is weak because a huge number of fund managers are studying for an upcoming qualification exam instead of following market movements. Photo: Bloomberg
Industry players say the market is weak because a huge number of fund managers are studying for an upcoming qualification exam instead of following market movements. Photo: Bloomberg

Chinese fund managers face real test this weekend

China’s A shares dropped for two straight sessions, with the Shanghai Composite Index slumping more than 3 percent. The declines have stoked concerns that the market is heading for another crash.

One amusing explanation for the recent correction is that around 30,000 Chinese private equity fund managers are preparing for the Fund Qualification Exam this Saturday.

All fund managers and senior managers of fund companies are required to pass the test before May 1, or they would not be allowed to continue managing funds and their licenses might be revoked, according to the new rules released by the Asset Management Association of China (AMAC) on Feb. 5.

Currently, over 30,000 fund managers and senior management of 18,000 of China’s 26,000 private equity funds have yet to obtain the qualification. The exam this Saturday is their last chance.

So the scramble to fill out forms and prepare for the exam is understandable. In fact, AMAC’s official website reportedly crashed as a result of the massive traffic.

It’s not an easy pie for those fund managers who left school several decades ago. And the pass rate for the two subjects of the exam is 78.4 percent and 48.5 percent, respectively, according to available data.

As such, a huge number of fund managers are studying for the exam instead of following market movements.

Observers say that if many of them fail to pass the exam, their funds need to be canceled. And the closure of their funds could lead to heavy sell-off in the market.

In that case, China’s “national team” might rush to bail out the market again.

The authorities have unveiled a set of measures in a bid to bolster the stock market since the start of the year. These include halting the strategic emerging industries board, delaying the launch of the IPO registration scheme, and increasing the leverage ratio for brokerages.

Still, the AMAC intends to beef up the professional qualifications of fund managers, which is quite sensible.

However, it has set such a tight deadline and only two exams for such a big number of examinees. It might have underestimated the market impact of such a hasty move.

Its official website says the AMAC is an voluntary non-profitable social organization made up of fund organizations across the nation, and is subject to the “guidance” of the China Securities Regulatory Commission.

Given the weak market, it might be that the AMAC failed to make sufficient coordination with the other members of the “national team”.

If fund managers are happy with their exams, China’s A shares might regain momentum in the coming weeks.

However, it’s more likely that the AMAC might relax the deadline to avert excessive market volatility.

This article appeared in the Hong Kong Economic Journal on April 22.

Translation by Julie Zhu

[Chinese version中文版]

– Contact us at [email protected]

JZ/CG

Hong Kong Economic Journal columnist

EJI Weekly Newsletter

Please click here to unsubscribe