The total assets in China’s money market funds have increased six-fold in the last year and a half, according to Fitch Ratings.
In a report published, the rating agency revealed that in the 18 months through to December 2014, total assets had risen to 2.2 trillion yuan ($353bn), driven primarily by retail investments in e-commerce related funds that are linked to online payment platforms.
According to the authors of the report, Fitch analysts Li Huang, Charlotte Quiniou and Alastair Sewel, retail investors accounted for more than 70% at the end of the second half of 2014. They cautioned that such investor appetite was unlikely to continue, however.
“Demand for Chinese money market funds will continue to grow, albeit at a slower pace. It will be more driven by institutional investors and multinational companies operating in China that are more conservative and less yield-hungry than retail investors”, the analysts wrote in the report.
The recent drop in financing costs has led money-market fund yields to near 4.5%, closer to that of Fitch-rated institutional firms, the note said.
The Yu'Ebao fund (which translates as “leftover treasure”) had particularly “shaken up the market”, according to the report, due to the lack of a minimum deposit or lock-in period. Investors are also able to move money in or out of accounts 24 hours a day.
Fitch warned that as the e-commerce related funds were primarily retail-focused, “their asset bases may be less stable than those of institutional money funds”. It added: “This may also affect market liquidity or pricing in the event of a sudden or material change in retail investor allocations. This could spill over to institutional money funds.”