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China money market funds battle short-term products
By Fitch Ratings |
November 13, 2012, Tuesday
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Print Edition
Print Edition
ASSETS at Chinese open-ended money market funds held steady in the third quarter despite the launch of a wave of new short-term wealth-management products. Investors have been attracted to these new products by their expected yields, which are higher than those of traditional money market funds. This is because such products focus on negotiated bank deposits, where banks' current funding needs drive high demand and favorable rates.
We believe that these higher yields for wealth management products may be temporary, and could reverse once funding conditions for banks become more normal. We expect high redemption activity should this occur. Money market funds have more diversified credit portfolios, and returns are less correlated to any single investment. They are also supported by experienced portfolio managers with credit research expertise.
As of September 30, total assets under management at Chinese money market funds were 359.6 billion yuan (US$56.7 billion), little changed from about 360.9 billion yuan at the end of June. Traditional money market funds in China gave investors an average return of about 3.24 percent (calculated as asset-weighted aggregated quarterly returns to end-September 2012).
The first short-term wealth management products were launched in May, with 28 offerings by the end of the third quarter and 16 more in October alone. Those included, their combined assets under management were about 134.2 billion yuan, about a third of those handled by traditional money market funds.
Like traditional money funds, these products come as retail and institutional offerings, but have remained geared toward retail which comprises about 75 percent of the total. At traditional money market funds, the institutional share is higher, at about 40 percent. Both products fall under the regulation of the China Securities Regulatory Commission. However, unlike money market funds, wealth management products are not open-ended and do not provide liquidity on a daily basis.
At the end of June, the traditional money market fund sector consisted of 53 funds, of which 34 provide the offerings designed to meet the needs of institutional investors.
The article first appeared on the Fitch Wire credit market commentary page. All opinions expressed are those of Fitch Ratings.
We believe that these higher yields for wealth management products may be temporary, and could reverse once funding conditions for banks become more normal. We expect high redemption activity should this occur. Money market funds have more diversified credit portfolios, and returns are less correlated to any single investment. They are also supported by experienced portfolio managers with credit research expertise.
As of September 30, total assets under management at Chinese money market funds were 359.6 billion yuan (US$56.7 billion), little changed from about 360.9 billion yuan at the end of June. Traditional money market funds in China gave investors an average return of about 3.24 percent (calculated as asset-weighted aggregated quarterly returns to end-September 2012).
The first short-term wealth management products were launched in May, with 28 offerings by the end of the third quarter and 16 more in October alone. Those included, their combined assets under management were about 134.2 billion yuan, about a third of those handled by traditional money market funds.
Like traditional money funds, these products come as retail and institutional offerings, but have remained geared toward retail which comprises about 75 percent of the total. At traditional money market funds, the institutional share is higher, at about 40 percent. Both products fall under the regulation of the China Securities Regulatory Commission. However, unlike money market funds, wealth management products are not open-ended and do not provide liquidity on a daily basis.
At the end of June, the traditional money market fund sector consisted of 53 funds, of which 34 provide the offerings designed to meet the needs of institutional investors.
The article first appeared on the Fitch Wire credit market commentary page. All opinions expressed are those of Fitch Ratings.
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