Foreign brands enjoy an advantage in many consumer sectors simply because they are a symbol of sophistication and international savoir-faire. But there is one area where being foreign is a stamp of shame: mutual funds. Chinese funds investing abroad through the trial Qualified Domestic Institutional Investor (QDII) program lost heavily in their forays into foreign markets. Nor did the highly public collapse of foreign banks impress. “Chinese people went back to saying, ‘We are better off investing in China through mutual funds and securities available in the local market’,” said Kunal Sinha, regional cultural insights director for Ogilvy & Mather Asia Pacific. In a survey conducted by Ogilvy and research firm Matrix, foreign financial institutions came up at the bottom of nearly every index. However, many domestic mutual funds had their own image problems: Poor regulatory enforcement led to scandals related to stock manipulation. At the same time, most of them didn’t make much money at home. Sixty domestic mutual funds reported a net loss of US$51.8 billion in the second quarter of this year. The average Chinese investor therefore still prefers to store the fruits of his or her productivity in cash and property, in that order.
To promote investment in equities and funds, the industry is increasing its spending on marketing. “They certainly promote themselves a lot,” said analyst Howhow Zhang of Z-Ben Advisors. “We estimate they spent RMB230 million [US$33.97 million] on promotion and advertisement in 2009.” Most of the money went into investor education tours, traditional advertising, and improved websites.
The advertising message also targets Chinese investors’ perceived conservatism. “All the mutual funds in China talk about how they don’t make crazy investments, they talk about safety and security,” said Jonathan Chajet, managing director for Interbrand China. “A lot of them emphasize government backing. They try not to overemphasize better return.” At the same time, Zhang said that domestic competition has increased as market entry policies have eased. “We have many fund management companies with practically no track record. There are more firms and more products, but the same number of investors, the same amount of savings in the bank and the same number of banking distributors.” As a result, even leading fund managers ChinaAMC, Harvest and Fullgoal are going to have trouble controlling their fee structures as they fight off new entrants. ChinaAMC’s Growth Securities fund already charges 1.8% front and deferred loads, plus a 1.5% management fee. That’s a lot to pay for a fund that lost nearly 10% over the last 12 months. It will take more than good advertising to convince investors otherwise.