Investors In Virush-Hit China Gobble Up Bonds, Money Market Products

Chinese investors are shunning equity funds and piling into bonds, deposits, and money market products, as stocks tumble and a gloomy economic outlook saps demand for risky assets, Jason Xue, Samuel Shen, and Tom Westbrook reported for Reuters.

Photo Insert: Stocks in China are tumbling.

Money is heading so quickly into some deposit-investment vehicles that fund managers have started restricting flows to keep a lid on size. Risk aversion is also prodding banks themselves to plow money into commercial paper, rather than corporate loans, complicating Beijing's efforts to guide more credit into the pandemic-hit economy.

Fresh fundraising by active equity and balanced mutual funds in China slumped 83% during the Jan-April period from a year earlier, to 154.6 billion yuan ($23 billion), according to fund consultancy Z-Ben Advisors.

The tumbling demand was "caused not only by the A-share market decline, but also the persistent underperformance of Chinese equity funds," said Ivan Shi, Z-Ben's head of research.

An index tracking the performance of Chinese active equity funds has plummeted 25% so far this year, compared with a 17% loss in the benchmark index. "Unless managers can outperform the broad market, it is hard to expect a resurgence of fund inflows," Shi said.

Zoey Qin, a bank account manager in Shanghai, said many clients have been burned by equity funds, and are seeking alternatives in low-risk products such as bond funds or deposits. Risk appetite has evaporated in recent months, following the Ukraine-Russia crisis and Shanghai's COVID-19 lockdown.

Z-Ben data shows a jump in bond fundraising over the past two months, totaling 127 billion yuan, or 27% higher than year-earlier levels.

Meanwhile, money is gushing into money market funds and bank deposits. On April 26, a fund launched by China Merchants Fund Management Co. that invests in interbank certificates of deposits (NCDs) hit its fundraising target of 10 billion yuan on its first day of sales.

A number of similar deposit-investment products started restricting money inflows over the past week to prevent their fund size from ballooning.

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