Fitch: Chinese Money Market Funds’ Growth Set to Slow

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Shanghai/Paris/London: Demand for Chinese money market funds (MMFs) will continue to grow, albeit at a slower pace, says Fitch Ratings in a new report. This follows 18 months of rapid retail-driven expansion which propelled China to the position of the fifth largest MMF domicile globally.

Chinese MMFs experienced a rapid and pronounced expansion from the second half of 2013. This was mainly driven by retail investments in e-commerce related funds, which are linked to online payment platforms, and MMFs’ attractive yields. By the beginning of 2015, the total assets of the 231 active Chinese MMFs had reached CNY2.2trn (USD353bn), more than six times their level 18 months ago.

Demand for Chinese MMFs will come increasingly from institutional investors and multinational companies operating in China, which are less yield-hungry than retail investors. MMFs are gaining popularity among institutional investors since the internationalisation of the renminbi and because they can meet the cash management needs of companies operating in China. Institutional assets represented only 30% of assets at mid-2014, but they rose 50% in 1H14, reaching CNY442bn at end-June 2014.

Chinese MMFs have varied risk profiles. Retail MMFs invest heavily in term deposits and bonds and typically have a longer weighted average maturity. AAAmmf(chn)-rated funds (and equivalently-rated funds ) have a greater focus on short-dated assets of high credit quality, notably short-dated exchange-traded repos. This reflects their primary objective of providing investors with liquidity and stability in their capital investment.

The agency believes there could be greater differentiation of funds and asset managers in a lower yield environment in 2015.

Fitch’s special report titled “Chinese Money Market Funds: Growth Set to Slow” provides insights on the latest developments in the industry, demand drivers, market concentration and portfolio construction. It is available on Fitch’s website.