Already strong inflows into money market funds in China look likely to increase on the back of regulatory restrictions imposed on rival short-term wealth management products issued by banks.
The China Banking Regulatory Commission (CBRC) this month ordered commercial banks to stop selling WM products with a maturity of less than a month to reduce banks’ growing dependence on them as a way of increasing deposit bases.
Statistics from CNBene, a Chengdu-based data provider, show that commercial banks in China issued 14,347 wealth management products worth a total of Rmb13.35 trillion ($2 trillion) during the first three quarters of this year.
Startlingly, that is more than six times the overall AUM of the country’s 68 fund management companies, which saw combined AUM shrink to Rmb2.1 trillion by the end of September.
Since commercial banks are the key distribution channel for mutual funds in China, CBRC’s order in effect will help FMCs to compete more effectively with bank-issued products that have been eroding mutual funds’ market share in the retail wealth management arena.
In particular, this will support the growth of short duration money-market funds such as term deposits, government bonds, AAA rated corporate bonds and central bank bills.
“Money market funds are one of the few positive performing products left in [China’s] mutual fund industry,” notes Shanghai-based consultancy Z-Ben Advisors. “Limits on bank wealth management products will only make money-market funds more attractive to retail investors.”
It is a telling fact that money-market funds still attracted inflows in a funds industry that is losing AUM. “Money-market funds became the most significant factor in AUM change in the third quarter,” notes Z-Ben.
For instance, Bosera FMC saw the assets under management in its money-market fund grow 223% quarter-on-quarter to Rmb15.2 billion in Q3, from Rmb4.7 billion. That is attributable to a seven-day annualised return to November 23 of 5.3%.
The inflow helped it to surpass Southern FMC and become the fourth largest player in China’s mutual funds market.
Meanwhile, Guangfa FMC’s money-market funds, class A and class B, also recorded quarterly AUM increases of 136% and 22%, respectively, in this year’s third quarter, sending their combined AUM to Rmb9.2 billion. The seven-day annualised returns of both classes to November 23 were above 5%.
According to data from Galaxy Securities, as at November 23 the seven-day annualised returns of 62 out of China’s 77 money-market funds were above 3.5%, which is the one-year term-deposit rate – meaning that 80% of them have outperformed their benchmark.
The People’s Bank of China (PBoC), the central bank, has increased banks’ reserve requirement ratio several times this year, tightening liquidity and keeping yields on short-term investments high. This has contributed to the positive performance of money-market funds this year.
HSBC Jintrust FMC launched its money-market fund last month. Its fund manager, Jackling Zhong, notes: “We think money-market funds will continue to benefit from government policy, which supports a high interest-rate environment.”
Harvest FMC applied to launch its second money-market fund in September.