Morgan Stanley Cuts 9% of  Staff in China Amid Market Turbulence

Morgan Stanley has cut off approximately 9% of its workforce at its asset management business unit in China. The move comes as the country’s stock market experiences turbulence, impacting its $3.8 trillion fund sector outlook.

The capital market company began decreasing staff in December, and the move has affected approximately 15 employees. This would be the first time Morgan Stanley has reduced staff at the China fund unit since purchasing its local partner’s 36% ownership in the loss-making business for $54 million in 2023. It relaunched the unit as a wholly-owned subsidiary in June.

When reached out for a comment, Morgan Stanley declined to provide one.

Navigating Economic Challenges

The retrenchment highlights the difficulty that major financial giants, including JPMorgan and BlackRock, face in the world’s second-largest economy as a long-running economic downturn hits markets there.

The weakening of the Chinese market has dampened local investors’ appetite, resulting in significant redemptions from actively managed stock funds. Moreover, Morgan Stanley’s job layoffs in the China fund unit add to the negative outlook for other China-focused jobs in the financial sector, including investment banking.

China’s onshore fund market saw a subdued 6% increase in assets last year, following a 1% increase in 2022, dropping from a spectacular yearly growth of more than 27% in both 2020 and 2021.

Mixed Performance Amid Economic Headwinds

Shenzhen-based Morgan Stanley IM China’s assets under management fell every quarter after peaking in June 2021, with investments in its funds falling 53% to 19.8 billion yuan ($2.75 billion) by the end of 2023.

The subsidiary lost 48.5 million yuan in 2022 and 23.2 million yuan in the first half of 2023, according to profits from its previous joint venture partner, Huaxin Securities.

For the first time, the US firm appointed Alex Zhou, chief investment officer at Morgan Stanley IM China, to oversee the investment operation. Zhou formerly worked for AIA, where he was head of equity.

The headcount reduction and Zhou’s appointment are part of Morgan Stanley IM China’s ongoing efforts to realign the business after acquiring full ownership last year, according to a third source familiar with the matter.

Some analysts emphasized the need to “play defensive” amid dwindling fundraising prospects, citing it as a significant factor driving the cuts.

Peter Alexander, founder and managing director of China consultancy Z-Ben Advisors, said foreign firms might just be rolling out overhauls or cuts in China units out of “policies of inertia”.

“It is more about pressure from the headquarters to reduce expenses anywhere and everywhere,” he stated.