As China opens its asset management markets wider for global firms effective today, BlackRock, Inc. BLK has applied for a fund management license to set up its wholly-owned mutual fund in the country.
The novel coronavirus outbreak, which originated at Wuhan in China, has significantly affected most of the major world economies. In addition to disrupting investor sentiments largely, the outbreak overshadowed the further liberalization of the investment banking and money management industries in China.
However, China’s decision to scrap the limitations on foreign shareholding in securities and fund management firms will likely boost confidence for global companies amid the ongoing crisis.
Per Larry Fink, CEO of BlackRock, China provides a long-term opportunity as a growing market despite the current volatility.
He stated in his annual letter to shareholders, “I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term, both for asset managers and investors, despite the uncertainty and decoupling of global systems we’re seeing today.”
Notably, global wealth firms that have been hit hard by the pandemic are already struggling to mitigate its economic consequences.
Thus, by setting up mutual fund units in China, with full control, these firms will be able to tap the China asset management market, which is set to grow at a rapid pace. Moreover, it will provide investors in China a greater variety of financial products and services.
Notably, along with BlackRock, the China Securities Regulatory Commission (CSRC) has also received an application from Neuberger Berman to set up its mutual fund unit in China.
In addition to setting up mutual fund units in the country, asset managers across the globe can work with the wealth management subsidiaries of China banks or insurers, wherein they will bring their product design expertise and collaborate with China firms’ vast distribution network and relationship managers.
Further, global wealth firms, which are not financially strong to make significant investments, can apply for private fund management licenses, which will allow them to raise yuan-denominated funds from qualified clients to invest overseas.
Lastly, global asset managers can opt for boosting their ownership of existing joint venture (“JV”) partnerships in China to 100%.
Some of the firms that are set to take advantage of the various options available are Vanguard Group Inc., JPMorgan JPM, Goldman Sachs GS, Morgan Stanley MS and a few others.
JPMorgan intends to get approval for full ownership of its China fund management JV, China International Fund Management, by next year.
Goldman Sachs and Morgan Stanley received a nod from the CSRC to increase stake in their mainland securities joint ventures to 51%.
Thus, with foreign firms being allowed to conduct business in China without any restrictions, their revenues and market share will improve. Also, as the current global operating backdrop looks challenging, global diversification is likely to support their financials.
In fact, once the market conditions improve, BlackRock’s revenues will likely get support from its efforts to strengthen the iShares and ETF operations, solid assets under management balance, and increased focus on active equity business.
Shares of BlackRock have lost 12.5% so far this year compared with a 22.4% decline recorded by the industry.
Currently, the company carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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