China’s trust industry posted its fastest growth in more than two years as the recent stock-market boom led to a jump in trust money invested in equities.
Assets under management rose 10.1 percent to 15.9 trillion yuan ($2.6 trillion) at 68 trust companies as of June 30, compared with three months earlier, according to data released by the China Trustee Association on Monday.
Money invested in stocks jumped by a record 635 billion yuan, or 82 percent, to 1.4 trillion yuan by the end of June, the association said.
Trust investors have channeled money into equities mostly through so-called umbrella trusts, helping drive a 60 percent rally in the Shanghai Composite Index from the beginning of the year to its June 12 peak. The gauge has plunged 31 percent since then, despite government efforts to prop up the market.
An umbrella trust receives funding from private investors, the banks’ wealth-management products, securities firms and other companies, and invests the proceeds in shares or other investments. Because the companies and wealth-management vehicles receive a fixed return, and private investors receive returns based on stock-market performance, the umbrella trusts have effectively become a way for Chinese investors to get around government restrictions on borrowing from banks to purchase shares.
China’s total shadow-banking assets may grow a “healthy” 14 percent to 19 percent annually from 2015 to 2017, led by Internet-based lenders, to reach 47.5 trillion yuan, according to Maybank Kim Eng Securities Pte. Still, that would be slower than an average 37 percent growth between 2010 and 2014, which was fueled by risky assets such as trusts, analysts Steven Chan and Ning Ma wrote in a July 23 report.
At the end of June, China had 450 so-called “risky” trust products valued at 103.4 billion yuan, up from 425 products valued at 97.4 billion yuan three months earlier, the China Trustee Association said.
— With assistance by Jun Luo