June 8, 2020 / 5:02 AM / a month ago

Chinese mutual funds to raise money for New Third Board investments

SHANGHAI (Reuters) - Chinese mutual funds are raising money to invest in the country’s New Third Board exchange, as Beijing pushes forward with reforms in its capital markets to help shore up its economy amid the coronavirus outbreak and rising Sino-U.S. tensions.

Wanjia Asset, China Asset Management, China Merchants Fund, China Universal Asset Management and Fullgoal Fund, five of the first six funds which are allowed to invest in the country’s board for small and medium-sized enterprises, published their prospectuses on Saturday and will offer units of their funds on June 10.

According to their prospectuses, the investments in the board will be restricted to the so-called “select tier”, a tier which requires highest standards in the board in terms of corporate governance, market capitalisation and profitability.

Lin Sishan, an analyst with Central China Securities, said mutual fund participation would improve liquidity.

Other analysts said it could also boost trading activity and pricing efficiency.

The fundraising to support the New Third Board, a lesser known part of China’s capital markets, comes as Beijing looks to help bolster the financing channel for its companies amid Sino-U.S. frictions.

Tensions between Washington and Beijing have spiked, as Trump administration has complained about China’s early handling of the coronavirus outbreak and its tightening grip of Hong Kong via a new security legislation

Against the backdrop of tensions, the decisive factor is China’s own reforms in its capital markets, said Pei Guilin, CEO of a Jiangsu-based asset manager.

Beijing is stepping up plans for a new “mini-IPO” market to help the country’s army of small companies access capital quickly, as it keeps growing the next generation of innovative companies.

So far this year, the New Third Board index .CSI899001 has gained about 8% to a near two-year high, compared with a 3.6% loss for the benchmark Shanghai index .SSEC.

Reporting by Luoyan Liu and Brenda Goh; Editing by Jacqueline Wong

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