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China MMF steady despite wealth management products surge, says Fitch

Assets at Chinese open-ended money market funds held steady in Q312 despite the launch of a wave of new short-term wealth-management products, Fitch Ratings says.

Investors have been attracted to these new products by their expected yields, which are higher than those of traditional CMMFs. This is because such products focus on negotiated bank deposits, where banks' current funding needs drive high demand and favourable rates.

Fitch believes that these higher yields for wealth management products may be temporary, and could reverse once funding conditions for banks become more normal. It expects high redemption activity should this occur. CMMFs have more diversified credit portfolios, and returns are less correlated to any single investment. They are also supported by experienced portfolio managers with credit research expertise.

At end-Q312 total assets under management at CMMFs were CNY359.6bn (USD56.7bn), little changed from about CNY360.9bn at end-Q212. Traditional CMMFs gave investors an average return of about 3.24 per cent (calculated as asset-weighted aggregated quarterly returns to end-September 2012).

The first short-term wealth management products were launched in May, with 28 offerings to end-Q312 and 16 more in October alone. Those included, their combined AuM were about CNY134.2bn (up from CNY47.6bn end-Q312), about a third of those handled by traditional CMMFs.

Like traditional CMMFs, these products come as retail (A-class) and institutional offerings (B-class), but have remained geared towards retail which comprises about 75 per cent of the total. At traditional CMMFs the institutional share is higher, at about 40 per cent. Both products fall under the regulation of the China Securities Regulatory Commission. However, unlike CMMFs, wealth management products are not open-ended and do not provide liquidity on a daily basis.

At end-Q312 the traditional CMMF sector consisted of 53 funds, of which 34 provide B-class offerings designed to meet the needs of institutional investors.

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