Japan leads global mutual funds growth

A survey of the global mutual funds market by Deutsche Asset ManagementÆs retail arm DWS Investments reveals that in 2005, the industry grew fastest in Japan, where assets in mutual funds rose 35% to Ñ55.3 trillion (Ç397 billion, $484 billion). Last year JapanÆs industry increased AUM at the fastest rate in its history. The strong performance of Japanese equity benchmarks as well as inflows grew Japanese equity funds by 49% to Ñ40.8 trillion ($357 billion).

Asia-Pacific ex-Japan was the second-fastest growing region for mutual funds. The markets of Hong Kong, Korea, India, Australia and New Zealand saw AUM grow by 23.3% in local currency terms to Ç875 billion ($1.1 billion), thanks to Ç24 billion of new inflows as well as equity-market performance (although New ZealandÆs market actually lost AUM). IndiaÆs industry performed best last year, growing AUM by 39% to Rs2 trillion (Ç37 billion, $43 billion).

The rest of the world also experienced growth in mutual fund assets last year, with European AUM up 20.9% to Ç5.3 billion ($6.8 billion), Canada up 14.9% to Ç409 billion ($521 billion) and the United States up 9.9% to Ç7.5 billion ($9.6 billion), or 52% of the Ç14.5 trillion ($18.4 trillion) of global total fund assets under management.

Although last year saw the worldÆs mutual fund assets grow, regional and country differences emerge in fund composition.

Worldwide, equity funds account for 50% of mutual fund assets. In Europe, equity fund assets declined in proportion to the total from 46% in 2000 to 41% at end-2005. Equity funds have expanded in the US to 56% of that market.

For Asia-Pacific ex-Japan, equity funds comprise 39%, but the level varies wildly by country, from a high of 64% in Hong Kong to an average 36% in India to a very low 13% in Korea û itself a huge increase over the past two years.

Japan is harder to classify, as the local definition of equity includes balanced funds, giving us a total of 74% of the market. Much of the new inflows, some Ñ7.7 trillion, went to equity funds with monthly dividends.

But Japan has a relatively small industry for money market funds, which represent only 5% of the Japanese market, compared to 6% in Hong Kong, 32% in India and 33% in Korea. Its bond fund market is also relatively smaller: 21% of the Japanese mutual fund assets, versus 24% in Hong Kong, 28% in India and 26% in Korea.

The survey data is good till end-2005 but the past six months have witnessed big changes in the markets, with equity market corrections that have no doubt whittled these gains. South Korea has also seen a mass exodus from its money market funds back to bank deposits. So already the Deutsche survey is now a relic û but a useful way to track the impressive growth in mutual funds in Asia during periods of good sentiment. Despite the recent corrections, the growth trend is likely to prevail.