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August 2020
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China mutual fund assets jump 20% in January-May, Fitch says

Bull statue in Shanghai finance street
By Asia Asset Management  
July 9, 2020

China’s mutual fund assets under management jumped 20% to 15.8 trillion RMB (US$2.2 trillion) between January and May, in stark contrast to widespread declines in other major markets in the wake of the coronavirus crisis, according to Fitch Ratings.

Fund assets in China were primarily bolstered by increased money supply, and record inflows into money market funds (MMFs) amid “investor conservatism”, the ratings agency says in a report on July 7.

By contrast, US fund market assets shrank 16% in the first five months of 2020, and dropped 5% in Luxembourg.

According to the report, a key driver for China’s fund market was a 11% increase in broad money supply, or M2, in both April and May – the largest monthly gain since a 9% rise in November 2017 – because there’s a 95% correlation between money supply and mutual fund assets.

It says economic risk related to the coronavirus pandemic prompted investors to turn more conservative.

Their search for less risky fund choices helped drive a record 1.3 trillion RMB of net inflows into MMFs in the first five months of this year compared with just 50 billion RMB in the same period of 2019, boosting total MMF assets to an all-time high 8.4 trillion RMB as of May 2020.

Bond funds and balanced funds recorded more modest net inflows of 600 billion RMB and 500 billion RMB, respectively, up from 200 billion RMB in January through May 2019.

MMFs, which are mainly distributed in China via electronic platform under e-commerce giants such as Alibaba Group, have been the largest fund type in the country since 2015, accounting for over half of overall mutual fund assets.

“MMF flows demonstrate investor conservatism, as AUM increased substantially despite declining yields, which more quickly affect MMFs due to their short maturity profiles,” Li Huang, an analyst at Fitch Ratings, says in the report.

She believes flows into these funds may reverse if the overall investment sentiment improves.