Fitch Expects Slowing Demand for Chinese Money Market Funds

Demand for Chinese money market funds (MMFs) will continue to grow, although at a slower pace, a report from Fitch Ratings predicts. This follows 18 months of rapid retail-driven expansion which propelled China to the position of the fifth-largest MMF domicile globally.

The credit ratings agency (CRA) notes that Chinese MMFs experienced a rapid and pronounced expansion from the second half of 2013. This was mainly driven by retail investments in e-commerce related funds, which are linked to online payment platforms, and MMFs’ attractive yields. By the beginning of 2015, the total assets of the 231 active Chinese MMFs had reached 2.2 trillion yuan (CNY) (US$353bn/€320bn), more than six times their level 18 months ago.

Fitch predicts that demand for Chinese MMFs will come increasingly from institutional investors and multinational companies operating in China, which are less yield-hungry than retail investors.

MMFs are gaining popularity among institutional investors since the internationalisation of the renminbi (RMB) and because they can meet the cash management needs of companies operating in China. Institutional assets represented only 30% of assets at mid-2014, but rose 50% in the first half of last year to reach CNY442bn at end-June 2014.

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