CHINA’S mutual fund industry is pushing to develop investment products linked to local commodity futures, betting that plans to fight chronic oversupply in the country’s mammoth resource sector will drive up prices for raw materials.

    The funds want to branch out beyond their traditional focus on stocks and fixed-income, with no immediate upturn in sight in the wake of turmoil last year that pulled down share markets by nearly 50 percent and forced bond yields to multi-year lows.

    But a government campaign to streamline China’s bloated mining industries and crimp supply that has dragged on global commodity markets has buoyed hopes of an enduring recovery in prices of materials such as iron ore and copper, burnishing their appeal to fund managers.

    Inflows from China’s mutual fund industry, estimated to have managed 8.4 trillion yuan (US$1.3 trillion) by the end of last year, could be a major boost to liquidity in one of the world’s largest commodity futures markets, which had transaction values totalling 136.5 trillion yuan in 2015.

    That would ramp up the pricing power of the top consumer of most raw materials at a time when China is looking to increase its sway in international markets.

    “Investors have a growing appetite to diversify their investment destination after the stock market crash, and believe commodities are good assets as China is pushing for capacity-cut reform that will be favorable for raw materials,” said Fang Shisheng, a senior official with Orient Futures in Shanghai.

    Shenzhen-based UBS-SDIC Fund Management in August 2015 launched the first Chinese mutual fund product to invest in local commodities, linked to silver futures on the Shanghai Futures Exchange.

    Other funds are now waiting for regulatory approval for similar steps. They include Fortune SG Fund Management, which a company official said was planning a fund that tracks Shanghai copper futures, and Huatai-Pine Bridge Investments, which wants to start a fund to track an index of several agricultural futures.

    Huang Lei, a marketing manager at Beijing-based Harvest Fund, said the company is also weighing the launch of a commodity product, though nothing has been set in stone.

    Meanwhile, a manager with Wanjia Asset said the Shanghai-based firm was preparing application materials to begin a fund that tracks a commodities futures price index, without giving more detail. (SD-Agencies)