Nikko Asset Management, Japan’s third-largest fund house, has increased its exposure to the red-hot Chinese mutual fund market by lifting its stake in Rongtong Fund Management to 40 per cent.

This year, Nikko AM became the first Japanese fund house to expand into the $148bn Chinese mutual fund market by acquiring a 20 per cent stake in Rongtong, a mid-sized local firm.

The latest move underlined Nikko’s determination to grab a slice of China’s $2,000bn in retail bank deposits, a savings pool that could be channelled into higher margin products.

In an interview with the Financial Times, Timothy McCarthy, Nikko AM’s chairman and chief executive, said the deal would “formalise” the two-year-old research partnership between Nikko AM and Shenzhen-based Rongtong.

The Japanese group will have the right to nominate two directors, who will be part of a nine-strong board.

It will also have significant control over Rongtong’s audit, compensation and risk oversight committees.

Analysts said a high degree of operational control could help foreign groups avoid reputational damage in this early-stage fund market.

JPMorgan’s Chinese fund joint venture, one of the most respected local firms, recently fired a senior portfolio manager amid allegations of illegal trading practices.

Mr McCarthy said his group would not press for changes in Rongtong’s management structure. “We felt that we wouldn’t need more formal control in the short term, because we know these people really well,” he added.

Nikko AM, which is 54 per cent owned by Nikko Cordial, the scandal-hit broker, said it would not disclose the price of the additional stake.

However, people close to the negotiations said the purchase price did “not significantly” exceed the price of the initial investment.

Analysts said Nikko AM had been able to secure an “extremely favourable” deal in March, when it paid $12.4m, valuing Rongtong at $62m, or 3.3 per cent of its assets under management.

Nikko AM manages more than $1bn worth of investments in China’s domestic A-share market for Japanese mutual fund investors.

Analysts said Rongtong’s latest fund launch attracted only Rmb1.7bn ($222m) of investments because existing products were trailing China’s top funds.

China has recently seen a rise in volatility in its retail investor-driven stock market. Mr McCarthy said Rongtong was coping with “speculative froth” by investing in less risky stocks.