Running an investment fund is getting much harder these days in China.
Two major asset segments — stocks, bonds — are in trouble, making it a challenging proposition for market professionals to secure decent returns or launch new funds.
After last year’s plunge in equities and massive government intervention, mainland stocks have rebounded somewhat. However, the artificial support can only take the market so far, given the prevailing concerns about a slowing economy.
In view of the headwinds, one can at best hope for a range-bound market in the short term. This is not good news for stock funds.
On the bond side, the situation is equally precarious, if not more.
Several bond issuers have defaulted on their obligations. Investor confidence is wearing thin, particularly on companies belonging to the commodity sector or industries suffering from overcapacity.
In year to date, there have been twelve cases of debt default by Chinese issuers, according to mainland media reports.
So far, market fear has been contained, as five of those bond issuers eventually paid investors back the money after some delay, sending out a signal that Beijing will pull all kinds of strings to prevent the outbreak of a wave of defaults.
The government is said to have surveyed 106 state-owned companies and assessed their repayment ability in relation to their bond obligations. The conclusion is that risk is rising but still within control.
Such assessment, however, may not be good enough for bond investors for long, bearing in mind the mounting repayment pressure in the second quarter, which has been a peak redemption period since 2009, according to the China Securities Journal.
A further weakening of the economy will also make it harder for shaky borrowers to service their debt.
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