China took an important step this week toward developing a free market for investment sales by eliminating several key fundamental restrictions governing its mutual fund industry, Dow Jones Newswires reports. As of Thursday, mutual funds based in China are no longer required to invest at least 20% of their assets in Chinese treasury bonds. Industry officials speculate that the move could trigger a selloff of up to $30.8 billion in government assets. New rules mandate that stock funds must invest at least 60% of their portfolio in equities, while bond funds are obligated to invest a minimum of 80% of their portfolios in debt securities. Aggregate funds are now entitled to invest up to 10% of a portfolio's assets in a single stock. The loosening of restrictions by the China Securities Regulatory Commission also came with a host of new consumer protection mandates requiring investment providers to clearly embolden prospectuses and sales literature wit the message "past performance is no guarantee of future return." U.S. experts predict that the looser regulatory environment will fuel rapid growth of China's $500 billion stock market by enabling mutual funds to differentiate themselves by pursuing individualized investment strategies. Early U.S. fund entrants in the Chinese market J.P. Morgan & Co. and a division of Prudential Financial are expected to benefit from the liberalized marketing and management regulations.
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