China mutual funds draw heavy inflows amid stock frenzy

SHANGHAI, Feb 1 (Reuters) - China saw record monthly inflows into new equity and balanced funds in January, as retail investors scramble for exposure to the bullish stock market.

Investors poured 414.8 billion yuan ($64.18 billion) last month into newly-launched equity funds and balance funds, which invests in both stocks and bonds, according to fund consultancy Z-Ben Advisors. The inflow was a jump of 166% from the previous month.

Investors are lured into a stock market that generated stellar returns last year. The government is also channeling household money into equities to fund innovation.

Although hot fund sales could fuel further rallies in Chinese stocks, it also stokes concerns that a bubble could be brewing. Chinese central bank adviser Ma Jun warned last week that the risks of asset bubble could increase if China doesn’t appropriately tightens its monetary policy.

Laura Wang, China Equity Strategist at Morgan Stanley, said Chinese stocks are not yet bubbly.

“We don’t see the current market sentiment getting overheated,” she said, adding the market will likely be range-bound amid positive elements such as improving earnings, and short-term uncertainties such as COVID and tighter liquidity.

Feverish demand for Chinese mutual funds will also benefit Hong Kong stocks, which saw heavy inflows recently from the mainland investors seeking bargains.

HSBC expects roughly 140 Chinese mutual funds to be launched in the first quarter of this year, raising up to 700 billion yuan. These funds can invest up to 50% of their money in Hong Kong via the Stock Connect scheme.

Morgan Stanley’s Wang said that Chinese investors are actively seeking opportunities in Hong Kong, where stocks trade at a discount to their mainland-listed peers, and have underperformed the Chinese market over the past few years.

“Mainland Chinese inflows are increasingly important to the liquidity and price-setting of the Hong Kong stock market.” ($1 = 6.4628 Chinese yuan renminbi) (Reporting by Samuel Shen and Andrew Galbraith Editing by Alistair Bell)