March 12, 2020 / 9:15 AM / 25 days ago

Chinese funds curb subscriptions to oil investments amid global price rout

SHANGHAI, March 12 (Reuters) - Chinese mutual fund houses are restricting or suspending subscriptions in outbound oil and gas related funds following the precipitous plunge in global oil prices earlier this week.

Crude oil prices dropped around 25% earlier this week after Saudi Arabia started a price war and said it was ramping up production, having failed to persuade Russia to join OPEC in cutting output as demand has fallen due to the impact of the coronavirus pandemic on the global economy.

Hwabao WP Fund Management Co. Ltd., partly owned by U.S. private equity firm Warburg Pincus, said it would temporarily suspend trading, while E Fund Management Co. Ltd., one of China’s largest asset managers, suspended investments. Both funds said their moves were aimed at protecting shareholders.

Some funds also cited foreign exchange quota restrictions for introducing curbs on fresh investments.

Funds’ investments outside China fall under its Qualified Domestic Institutional Investor (QDII) scheme, which permits registered Chinese financial institutions to invest a limited quota of funds in foreign financial assets.

E Fund Management said it would suspend subscriptions and regular fixed investments into its Crude Oil Securities Investment Fund from March 11 onwards due to “foreign exchange quota restrictions.

And GF Fund Management Co. Ltd said it adjusted the subscription limits of its GF Dow Jones U.S. Petroleum Development and Production Index Securities Investment Fund from March 11 onwards to “protect the interests of fund shareholders.”

The funds did not say when their curbs would be lifted.

Hwabao WP Fund Management suspended trading for its S&P Oil and Gas Upstream Stock Index Securities Investment Fund for an hour on Wednesday.

“Recently the fund’s net value and its secondary market price has fluctuated sharply, while high premiums continue to show on the market,” it said in a statement dated March 11.

“Investors are reminded to pay attention to the secondary market’s premium risk. If investors buy into the Hwabao oil and gas fund, they will bear additional premium costs and price risks caused by future premium fluctuations, which may cause significant losses.”

China Southern Asset Management Co. Ltd said while its Crude Oil Securities Investment Fund is trading normally, it warned investors to pay attention to price fluctuation risks with the funds secondary market trading price impacted by quota management and purchase restrictions.

“If you blindly invest, you may suffer significant losses,” it said in a statement on Thursday.

Reporting by Emily Chow and Samuel Shen; Editing by Simon Cameron-Moore

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