Chinese funds suffered record losses in the first half of the year, mainly from changes in fair value caused by the weakening stock market at both home and abroad.
TX Investment Consulting Co. reported on Friday the country's 364 funds managed by 59 funds companies incurred record losses totaling 1.08 trillion yuan (157.9 billion U.S. dollars) between Jan. to June. The company said 961.9 billion yuan was from changes in fair price, accounting for about 88.9 percent of the total losses.
Fair value is a rational and unbiased estimate of the potential market price of goods, services or an asset.
Due to the stock market slump in the first half, stock-based funds suffered huge losses valued at 1.055 trillion yuan, accounting for 97.52 percent of the total losses. Principal guaranteed funds and bond funds lost 2 billion yuan and 1.2 billion yuan, respectively, according to the report.
During the period, the country's A shares index and Hushen 300 index (the fund performance benchmark) plunged 48 percent and 47.7 percent, respectively. This was in reaction to the tightening monetary policy, the economic slowdown and pressure of huge freed-up non-tradable shares coming onto the market.
The U.S. sub-prime mortgage crisis and global inflation also dented investor confidence. The softening overseas equity market resulted in losses of 24.7 billion yuan to Qualified Domestic Institutional Investor (QDII) funds.
Losses were also incurred from stock trading price difference and other expenses, including securities custodian fees, management fees and commission expenses, which stood at 101.4 billion yuan and 35.5 billion yuan respectively.
However, the risk-free money funds turned out to be the only survivor from the shaky stock market. They gained profits of about 1.30 billion yuan.
China Nature Asset Management manager He Yun said it was normal for money funds to be popular in a sluggish market as their investment went to short-term, low-risk securities, such as short-term bonds and treasury bonds repurchase, among others.
An unidentified manager at China International Fund Management Co. said the rising earning rates of central bank bills provided money funds with good opportunities for investment.