BlackRock to enter Chinese market with new mutual fund

on Aug 29, 2020
  • Global money manager BlackRock can now sell mutual funds to Chinese people.
  • The interntional company is among an elite select few allowed to do so.
  • BlackRock already manages $7 trillion worldwide.

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BlackRock Inc. (NYSE: BLK) has plenty of reasons to celebrate as the global investment firm giant was granted approval to start selling products Chinese individuals, The Wall Street Journal reported.

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Milestone achievement

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The China Securities Regulatory Commission confirmed the New York City-based BlackRock can establish its own wholly-owned mutual fund business based in Shanghai, China, according to WSJ. The milestone implies BlackRock is among the select few in the world that can manage assets for Chinese citizens. 

China’s willingness to open up to foreign asset managers only started in 2020 when it scrapped laws preventing foreign asset managers to even apply for a mutual-fund license.

BlackRock’s exposure to China dates back more than 10 years and it has been selling private funds to high net-worth individuals since 2018. But it isn’t until now the company can independently access “mom and pop investors.”

The new exposure to China could be seen as continued momentum after the company’s strong second quarter earnings report in July.

What opportunity BlackRock faces

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Needless to say, BlackRock faces a massive opportunity in China given its status as the world’s second-largest economy, WSJ noted. BlackRock will now compete against Chinese asset managers who face minimal outside competition in managing an estimated 90 trillion yuan (around $13 trillion) worth of assets by 2023, per consulting firm Oliver Wyman.

Today there are more than 140 Chinese mutual fund managers that combine to manage 17 trillion yuan worth of assets, according to the Asset Management Association of China.

Challenges ahead

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BlackRock’s new exposure to China in no means it will steal market share away from a Chinese firm. At the most basic level, BlackRock will need to be “adaptive enough to compete locally,” Peter Alexander, a Shanghai-based consultant told WSJ.

But BlackRock also faces a broader challenge in geopolitical tensions between Washington and Beijing. Both sides have shown a willingness to use economic tactics as part of what could be a long-lasting ”cold war.”

Nevertheless, BlackRock CEO Larry Fink is ultra-motivated to proceed with what he considers to be a very lucrative market. BlackRock already manages more than $7 trillion in assets across the world.

He said in a recent letter to BlackRock shareholders that he believes China will be “one of the biggest opportunities” for the company over the long-term, according to WSJ. This holds true for both its asset managers and investors and holds true “despite the uncertainty and decoupling of global systems we’re seeing today.” 

It remains to be seen how investors will react to the report that was published by WSJ over the weekend.

Finance & Banking