(Bloomberg) -- China asked fund vendors and asset managers to stop displaying real-time estimates of their mutual funds’ net value by mid-June, according to a person familiar with the discussions, though some flexibility will be allowed over the timeline for the rollout.
Some of the country’s mutual fund companies and third-party data providers will cease to offer such information by June 16, said the person, who has direct knowledge of the matter and asked not to be identified as they aren’t authorized to speak to the media. A rolling deadline would be adopted for those with larger client bases. The move, which had been planned for months, is intended to guide investors toward long-term investment and protect their interests by reducing speculative day-trading, the person said.
The change was first reported by the Securities Times, which stated that real-time display of estimated fund values could lead to “irrational buying and selloff.”
The decision comes as Chinese stocks have slumped in recent months after signs of a faltering economic recovery and unabated geopolitical tensions ended an impressive reopening rally. It also underscores authorities’ long-held concerns about the risk of wild swings in a market dominated by individual investors that often use mutual funds for speculation.
“This will help smooth market fluctuations as some funds may have been seeking arbitrage versus these real time calculations,” said Wu Xuan, chief market analyst at Tebon Fund Management Co. “I think the measure, rolled out at this point in time, may also be related to the market’s recent weakness.”
The provision of real-time estimates for fund values can prove problematic. The figures may be distorted, for example, by large redemptions or purchases toward the end of a trading day. Such inaccuracies have been an issue leading to investor complaints, the person said.
Currently, funds-tracking websites such as East Money Information Co., as well as third-party fund vendors like Ant Group Co., provide calculations of changes in funds’ value throughout the trading day. Some mutual fund firms, including Penghua Fund Management Co., also supply real-time updates on their apps.
The service was originally introduced as a gimmick to boost sales, catering to the needs of mom and pop investors and allowing them to chase rallies and offload during selloffs, the Securities Times report said.
“These value estimates may exacerbate investors’ mood swings within the day, and if the move does not meet expectations, it could lead to irrational selling on a whim,” said Yang Ruyi, fund manager at Shanghai Prospect Investment Management Co. “This will lessen losses and help enforce a longer-term investment perspective.”
--With assistance from Mengchen Lu.
(Updates with details throughout)
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