Sewell on Chinese Money Funds
Bloomberg's Daybreak Asia Radio show on Wednesday featured Fitch Ratings' Alastair Sewell, who "discusses the growth he expects to see in Chinese money market funds and how regulatory clampdown has impacted that." Sewell says, "The growth is continuing. One of the key drivers of that growth is the spread between deposit rates and that's the rate between funds and what investors could earn leaving their money at a bank ... and that spread is on average positive. So there still are supportive conditions for investors leaving money in money market funds vs. banks in China.... Yu'e Bao has been a phenomenon. It was launched in 2013 ... so it's 5 1/2 years old. It became and remains the world's largest money market funds.... That fund has shrunk, but if you scratch beneath the surface you can actually see that a lot of the assets in that fund have spread out into other funds. The funds are from different fund managers but are [accessed via] Alibaba.... Risks certainly remain compared to other markets ... but the regulatory tightenings have been effective." He continues, "There have been no new approvals in money market funds in China. One of the less publicized parts [of regulatory changes] has been the stall in the launch of new funds." Sewell adds, "There's a huge amount of domestic money invested in these funds. There's a very significant retail component as well.... Some of the funds which are sold to corporates are clearly going to be affected by wider macroeconomic conditions ... [like] U.S. tax reform. Certainly in multiple jurisdictions around the world, we have seen money move back onshore.... The U.S. industry is significantly larger still than China ... at $4 trillion. China comes in at about $1.2 trillion.... [Yu'e Bao is] still the biggest [fund].... The two closest funds ... are both U.S. [Government] funds." For more, see our Nov. 20 Link of the Day, "Tencent Launches WeChat Money Fund," our Nov. 1 News, "WSJ: Yu'e Bao Shrinking; Europe Still Unclear on RDM Ban; Weekly Holds," and our Oct. 1 News, "Worldwide Money Fund Assets: Chinese MFs Plunge; US, India Up in Q2."
