Top Biz News

Mutual fund gets nod to convert

By Li Xiaowei (China Daily)
Updated: 2006-08-01 10:15

SHANGHAI: Xingye Fund, a closed-end mutual fund managed by China Asset Management Co, obtained regulatory approval to convert to an open-ended instrument upon maturity, the fund said in an exchange filing over the weekend.

Xingye, which will mature in November, is China's first equity fund to convert from being a closed to an open-ended product, following a trend widely observed in developed fund markets in the West.

"The conversion allows elimination of the discount that closed-end funds tend to sell at and therefore better protects the interests of investors," said Zhong Liming, a fund analyst with Guotai Jun'an Securities.

"Besides, the conversion means the closed-end funds will continue to run as open-ended instruments rather than dissolve upon maturity. Massive sell-offs of stocks and other assets held by the funds will then be avoided," said Zhong.

Closed-end funds, which have a fixed number of shares and are publicly traded in the open stock market, tend to trade below net asset value. The net asset value is calculated by taking the total value of assets held by the fund less any liabilities and then dividing by the number of outstanding shares.

The majority of China's closed-end funds carry an average discount of over 10 per cent at the moment. The discount carried by the Xingye Fund, however, has dropped to around 7 per cent, reflecting investors' favourable view of the fund's future performance, said analysts.

After being suspended from trading for a month and a half, Xingye resumed yesterday on the Shanghai Stock Exchange and posted a record high turnover of 4.71 per cent.

It closed at 1.020 yuan (13 US cents) per share, up 0.29 per cent over its last traded price. By comparison, most of China's 54 closed-end funds declined in price yesterday in line with the fall of the stock market.

Xingye reported a net asset value of 1.1005 yuan (14 US cents) on July 28 this year.

The fund will be traded on the exchange market for another couple of weeks before being de-listed, said analysts.

It will then change into an open-end mixed equity fund investing in regular stocks, bonds and derivatives, China Asset Management Co said in a separate exchange filing.

Open-ended funds, which stand ready to sell new shares or redeem shares at any time, sell over the counter at a price based on net asset value.