Private pensions to drive multi-year growth
- New rules for private pensions to invest in pension-purposed mutual funds may lead to multi-year growth opportunity
- Our blue sky scenario suggests pension-purposed mutual fund AUM may reach Rmb11tn in the next 10 years
- With market activities recovering strongly in June and liquidity remaining accommodative, we expect a positive outlook in 2H
- BUY CICC (3908 HK) and GF (1776 HK)
Private pensions the multi-year catalyst.
Following the State Council’s opinions on promoting the development of the private pension scheme (?????), the CSRC on 24 June released new rules for private pensions to invest in pension purposed mutual funds. With the scheme providing a tax incentive, the set-up of a personal account system to allow
for full discretion, and the low pension coverage, we believe it will spark a multi-year growth opportunity for China’s mutual fund market.
Private pension mutual funds to reach Rmb11tn by FY32F.
The scheme allows eligible citizens to contribute up to Rmb12k p.a. to a private pension account. Our blue sky scenario suggests the total value of private pension funds may reach Rmb11.1tn by FY32F, or 42% of existing mutual fund AUM. With China’s pension assets accounting for only 4% of GDP, vs. the average of 50% among OECD countries, the growth in China’s private pension mutual fund market remains phenomenal.
Negatives in 2Q22F likely priced in; suggest positioning for 2H recovery.
With the robust June TSF number and the stabilising A-share market, market activities including ADT,
margin finance, and mutual fund AUM all rebounded in June, and we expect the trend to continue, given liquidity remains accommodative. Brokers are likely to see a q-o-q improvement in their 2Q result, but this will remain on a decline y-o-y, dragged by weak investment income. Nonetheless, the negatives are likely priced in and investors should position for the 2H recovery ahead.
BUY CICC and GF.
China brokers under DBS coverage are trading at 0.6x forward P/BV on average, or near 2SD below its five-year mean. The share price YTD was down 20% vs. the A-share being down 14%, and the risk-reward is considered attractive. With an improving 2H outlook, we continue to like brokers with a strong investment banking/asset management franchise.