Shanghai – China for the first time overtook Europe as the world’s second-largest money market fund (MMF) market in 2Q22, accounting for about 18% of global MMF assets, after the US (55%) and before Europe (17%), says Fitch Ratings.
Chinese MMFs have expanded at a five-year compound annual growth rate of about 16% to end-June 2022. Total assets under management reached a record high of CNY11.0 trillion in May 2022, but decreased slightly to CNY10.6 trillion in June, according to Asset Management Association of China.
China’s MMF market has also become more diversified, as the largest fund has shrunk in recent years and flows have been diverted into other funds. The market share of the largest MMF and the top-five MMFs fell to 7% and 15%, respectively, in June 2022, from highs of over 30% and 60% in 2014.
The Chinese MMF yield dropped to below 1.6% as of August 2022, from 2.7% at end-2020, as short-term interest rates moved downwards. This level is close to the 2020 nadir of 1.5%. We expect China’s policy interest rate to remain stable in the next 12 months, which should limit further downward pressure of the MMF yield.
Regulatory reforms since 2015 have brought Chinese MMFs closer to international standards, however, there is still a substantial discrepancy between MMFs in China and those in western markets. The 2022 regulatory reform proposals focus on large MMFs, which are classified as ‘Important’. These MMFs will be subject to stricter rules, but we do not expect Fitch-rated Chinese MMFs to be affected, as their size falls below the threshold for ‘Important’ MMFs.