E-commerce money funds alter investor profile
Print Edition
To say that Chinese e-commerce money market funds, which are linked to e-commerce platforms, have exploded in popularity is an understatement.
Alibaba’s online investment fund Yu-E Bao, launched in the third quarter of 2013, accounts for 80 percent of e-commerce money market fund assets in China, becoming the largest of its kind.
Retail investment in e-commerce related funds like Yu-E Bao, which have shown higher yields relative to traditional banking products, have accounted for most of the exponential growth of such Chinese money market funds.
At the beginning of 2015, total assets of the 231 active money market funds reached 2.2 trillion yuan (US$353 billion), up 500 percent from the end of the second quarter of 2013. That ranked China fourth among money market funds globally, according to ICI.
Growth of the funds has outstripped expansion of money supply since the second quarter of 2013, effectively drawing money from other segments of M2 bank deposits.
So the logical question is: Why have these funds grown so quickly?
Among the reasons are the relative ease and convenience of e-commerce money market funds, which makes them wildly popular and an integral part of daily life for average investors.
In addition to higher yields — primarily achieved by extending duration — and investment choice, the funds offer investors the following:
• Convenience: Money placed in e-commerce money market funds can be used for online purchases or even for taxis and credit card payments. For example, Yu E Bao is linked to the online Alipay system, allowing investors to pay off credit cards or remit money between bank accounts. Alipay even has cooperative links with taxi apps, allowing fares to be automatically debited from Alipay or Yu E Bao accounts.
• Low investment threshold: Traditional wealth management products offered by banks normally require a minimum investment amount starting at about 50,000 yuan, but investors can enter an e-commerce fund with as little as one yuan.
• Easy redemption: Many platforms offer instant redemption and free transfer back to bank accounts, in contrast to traditional retail money market funds. In essence, the redeemed amount of money will be instantly returned back to the bank account, subject to certain limitations such as a cap of 50,000 yuan a day.
Challenges and risks
Despite their popularity, e-commerce money market funds still tend to attract more retail than institutional investors. Unlike their institutional counterparts, retail investors are relatively risk-insensitive and not necessarily well versed in funds. Many investors think of the funds as bank accounts, which is certainly not the case.
Since funds are retail-focused, they tend to have a less stable investor base. Also, retail investors tend to be more yield-hungry and may get over-excited under certain stressed circumstances. This “herd behavior” can lead to periods of mass fund exodus.
Meeting redemptions in such a scenario may prove a challenge for the funds.
Retail e-funds invest heavily in negotiable term deposits and bonds, tending to take longer-dated assets to keep yields competitive. Most of the bonds bear fixed rates and are of longer maturity, while institutional money market funds have a greater focus on shorter-dated assets. This longer duration exposes retail e-funds to increased interest-rate volatility.
The combination of longer durations on the asset side and the ability to withdraw funds easily on the redemption side means that retail e-funds face a material maturity mismatch.
Meeting large outflows could be problematic. Most of the funds have overnight loan facilities in place with banks to support their ability to provide redemption liquidity in times of market stress. However, these facilities are normally limited to a certain amount.
There were 79 online distributed e-commerce money market funds with 1.5 trillion yuan in assets at the end of 2014, according to Rong360, an e-finance service company in China. Those funds were mainly sold via banks, asset managers and e-commerce platforms. The latter account for half of the market.
It is clear that e-commerce funds now represent the largest segment of China money market funds in terms of total assets. Their emergence is shaking up the market. The key question is whether retail investors fully understand the risks.
Alastair Sewell is a senior director and Li Huang is an associate director with Fitch Ratings. The opinions here are their own.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
