China climate-focused funds saw higher inflows, but fewer launches last year: Morningstar

Climate-focused mutual funds in China saw a decline in assets and product launches last year despite an uptick in inflows, with the funds prone to huge volatility because of speculative trading, according to Morningstar.

Assets of mutual funds and exchange-traded funds (ETFs) with a climate-related mandate in China, the world’s largest emitter of greenhouse gases, declined by 16 per cent to US$37.6 billion in 2023, a report from the US financial services firm showed.

While inflows into climate-related funds rose nearly 50 per cent to US$3.4 billion year on year in 2023, driven by those focusing on climate solutions, clean energy and tech, new fund launches fell 44 per cent to 36 in the same period, the data showed.

“In China, the deceleration of flows and product launches continues,” said Wang Boya, an ESG analyst at Morningstar. These flows tend to exhibit greater volatility, as new subscriptions are often driven by the speculative behaviour of local retail investors, he added.

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“Due to the central leadership’s commitment to their ‘dual carbon’ goal, sectors and companies associated with renewable energy and energy-efficient technologies and services have become a hotspot for investors,” he told the Post.

In China, price rallies are often initiated by local institutional investors, whose purchases are often mimicked by China’s vast legion of 220 million retail investors via ETFs or direct share purchases.