China’s money market sector has expanded to record size despite the returns provided by Ant Financial’s Yu’e Bao – the world’s biggest money market fund, seeing a sharp decline since the start of the 2018,
As of 17 October the annualised seven day yield on the Tianhong Yu’e Bao Money Market Fund was 2.729%, for a 38% decline compared to the rate of 4.4% at the start of 2018.
Data from Hithink Flush Information (同花顺) further indicates that that the average annualised seven day yield for nearly 800 money market funds monitored is just 2.9%, with only 18 money market funds providing returns of more than 4%.
Analysts say that the required reserve ratio reductions launched by the Chinese central bank in January, April, July and October have unleashed sufficient liquidity to drive down short-term rates.
“Money market funds are extremely sensitive in their response to liquidity, and at present there is an ongoing trend of decline in SHIBOR rates as well as a gradual decline in sovereign bond repos,” said one fund manager to 21st Century Business Herald.
“It is apparent that there is no lack of money on the market, thus leading to the decline in yields on money market funds.
“Looking at current conditions, it is highly likely that returns will continue to remain low…overall the focus will be a gradual downwards shift.”
Analysts further point out that a tightening regulatory environment has prompted some large-scale money market funds to actively contain their size, shrink costs and improve their risk management capabilities, which has had an impact upon yields.
Bank wealth management products have also seen a similar decline in yields, with data from PY Standard (普益标准) indicating that average returns for closed-end expected return renminbi WMP’s was 4.54% for the first week of October, for a decline of 0.04 percentage points compared to the preceding period.
Despite declining yields China’s money market sector continues has seen robust growth since the start of the year. Data from the Asset Management Association of China (基金业协会) indicates that as of the end of August assets under management by publicly offered funds hit a historic high of 14.08 trillion yuan.
Money market funds also hit a historic high of 8.95 trillion yuan at the end of August for an increase of 2.21 trillion yuan in the first eight months of 2018, making an 89% contribution to growth in publicly offered funds.
While yields on money market funds and bank WMP’s are on the decline, large-denomination CD continue to remain high as lenders turn to them as another channel for accessing funds.
Returns on jumbo CD’s are round 30% above the benchmark rate, with some products offering a premium of as high as 50%.
