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JPMorgan Might Own Majority Stake in China Fund Venture

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JPMorgan (JPM - Free Report) is likely to become the first foreign bank to own majority stake in its Chinese mutual fund operation. This might happen as the bank’s joint venture (JV) partner – Shanghai International Trust (which at present owns 51%) – has put 2% of the business up for sale.

Per the new rules (announced in late 2017), the China Securities Regulatory Commission allows foreign companies to increase their stake to 51% in securities JVs, up from the prior ceiling of 49%.

Last year, JPMorgan had stated its intention “to increase its current joint venture stake in China International Fund Management Co Ltd to a majority interest." Thus, the company is expected to take up the offer and increase the stake in the JV to 51%.

The open bidding process for the stake began on May 8 and will continue till Jun 4. In case, this Zacks Rank #3 (Hold) company wins the auction, it will still require the regulatory approval to increase the stake to 51%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of JPMorgan have rallied 3.4% over the past six months, outperforming the industry's rise of 0.8%.

Other Finance Companies in the Fray

Last month, Morgan Stanley (MS - Free Report) became the largest shareholder in its China mutual funds JV — Morgan Stanley Huaxin Fund Management Co — after winning an auction. Nonetheless, the company remains short of majority control as it now owns nearly 43% of the JV.

Credit Suisse , Goldman Sachs and UBS Group AG (UBS - Free Report) other global banks that are poised to take majority control of their respective Chinese investment banking JVs. Also, Japan-based Daiwa and Australian firm Macquarie are seeking nod for majority owned securities JVs.

Moreover, several asset managers including BlackRock, Invesco and Fidelity are in the fray to strengthen their Chinese operations.

Our Take

Global investment banks’ expansion has been limited in China for the past few years due to restrictions imposed on ownerships. This resulted in difficulties for firms in incorporating JVs with global operations.

With the easing of regulations for global banks and a growing Chinese economy, several foreign banks are expected to expand their presence in the region. Also, the country has taken steps to relax regulations related to foreign ownership in life insurance and asset-management JVs.

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