China's traders cash out as love for risky assets fades

Beijing

INVESTOR credit at China's brokerages is disappearing at the fastest pace in 10 months as a bleak earnings outlook prompts the country's investors to conserve cash.

Borrowed money in stock accounts fell 3.5 per cent month-on-month in March to 1.1 trillion yuan (S$221.6 billion), according to data compiled by Bloomberg. Stock turnover is down around 60 per cent from a February peak, showing how quickly participation in the equity market has cratered.

Some traders are switching to bonds and cash-like instruments instead, predicting stocks won't really recover for at least another six months. The fading enthusiasm is in contrast with a surge of interest earlier this year, which pushed the sale of mutual funds to a record high.

China's economy may be showing signs of restarting, but it is face a growing threat from slumping external demand. Cracks in the market are appearing, with traders unconvinced that stimulus measures will be enough to boost domestic growth.

Yin Ming, vice-president of Baptized Capital Co. in Shanghai, said he now has about 30 per cent of his portfolio in cash, the highest level since mid-2015 after the stock market crash. His firm recently sold some stocks after prices hit their targets and he says there is no plan to add more in the near term.

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With demand for cash management rising, investors are turning to the repo market for what they see as better liquidity and positive returns. The volume of 1-day government bond repos traded on the Shanghai Stock Exchange rose 20 per cent from end-February to the end of March.

Others are turning to the country's convertible bond market as the stock market cools. Convertible bonds offer equity-like returns with a more defensive tilt. As of April 1, a gauge tracking those assets showed a 4 per cent advance since the stock market plunge of Feb 3, outpacing the CSI 300 Index, which rose 1.6 per cent on Thursday. BLOOMBERG