China money-market fund assets jump to US$351b, Fitch says

[BLOOMBERG] China's money-market funds' total assets surged six-fold in the 18 months through December, rising to 2.2 trillion yuan (US$351.3 billion), according to Fitch Ratings.

The expansion was driven mainly by retail investments in e- commerce related funds, Fitch analysts Li Huang, Charlotte Quiniou and Alastair Sewel wrote in a report Monday. Retail investors accounted for more than 70 per cent at the end of the second half of last year, the note said, adding that the five largest asset managers held 51 per cent of total assets. Yu'E Bao, managed by Tianhong Asset Management Co and sold online by Alibaba Group Holding Ltd, was the largest with 26 per cent.

"Demand for Chinese money-market funds will continue to grow, albeit at a slower pace," the analysts wrote. "It will be more driven by institutional investors and multinational companies operating in China that are more conservative and less yield-hungry than retail investors." The People's Bank of China lowered interest rates for the second time in three months effective March 1 to counter the slowest economic growth in 24 years. The nation's policy makers will flexibly use interest rate and required reserve ratio tools, the government said last week. The monetary authority on Feb 4 said it's lowering lenders' reserve ratio by 50 basis points, the first across-the-board reduction since May 2012.

The yield on benchmark one-year sovereign bonds has fallen 20 basis points this year to 3.06 per cent on March 6. Asia's largest economy will probably expand 7.4 per cent this year, the least in more than two decades, according to the median estimate of analysts surveyed by Bloomberg.

The recent drop in financing costs have led money-market fund yields to near 4.5 per cent, closer to that of Fitch-rated institutional firms, the note said. Yu'EBao, which means leftover treasure, doesn't have a minimum deposit or lock-in period and gives subscribers the ability to move money in or out of accounts 24 hours a day.

"The rapid and pronounced growth of Yu'E Bao, which has become the largest Chinese MMF, has substantially shaken up the market,'" the analysts wrote. As Tianhong and other e-commerce related funds are primarily retail-focused, "their asset bases may be less stable than those of institutional money funds. This may also affect market liquidity or pricing in the event of a sudden or material change in retail investor allocations. This could spill over to institutional money funds."

BLOOMBERG