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Declining stocks fuel explosive growth in China’s domestic bond funds According to Reuters



© Reuters. FILE PHOTO: A view of a giant display of stock indices, following the outbreak of the coronavirus disease (COVID-19), in Shanghai, China, October 24, 2022. REUTERS/Aly Song

By Summer Zhen

HONG KONG (Reuters) – Chaotic stock markets and easy money conditions have made bond funds in mainland China the most preferred investment this year and possibly the under-performing asset. best in the region.

Data from the Asset Management Association of China (AMAC) jumped 27% from January to September to a record high of 5.19 trillion yuan ($717.07 billion). That’s the fastest-growing of the five asset classes tracked by AMAC.

Shanghai-based Colight Asset Management, one of the largest private bond funds in mainland China, has seen its AUM grow about 60% this year to 20 billion yuan.

Falling domestic interest rates and worries about economic growth have prompted domestic investors to flock to China’s relatively stable bond market, fund managers said. know, with falling stock prices and earnings exacerbating this trend.

“I have to say that the poor performance of other assets has made bond funds stand out,” said Jianqiao Feng, general manager of Colight Asset Management.

Looking to make the most of this trend, Blackrock Inc (N:) launched its first bond-oriented fund in China on November 1. The fund invests primarily in fixed income, with capital ratios. owners less than 30%.

This year, China has been more unusual as major central banks raise interest rates rapidly to combat inflation. The People’s Bank of China started its easing cycle in December 2021 and cut its benchmark interest rate twice in 2022, thus lifting bond prices.

Meanwhile, equities, which are generally favored by investors, have delivered dismal returns as negative factors such as simmering US-China tensions, as well as China’s frequent COVID-19 lockdown- 19 and the property crisis. The CSI 300 index has fallen more than 20% this year, while the yuan is down 12% against the US dollar.

In the six months to October, China’s domestic bond funds saw inflows of $73 billion, while equity funds faced outflows of $12.6 billion. , according to Refinitiv data.

Jinlong He, Chairman of Youmeili Investment, said: “Due to the strong adjustment of investment funds year-to-date and the decline in the returns of money funds, investors have turned to products with high yield. medium and low risk fixed income,” said Jinlong He, President of Youmeili Investment, at Shenzhen-based asset manager.

The investment strategy was successful.

The average return on domestic bond funds rose 9.74% in the first nine months of the year, according to fund distributor Simuwang.com, which tracks more than 18,000 private funds in the country, outpacing other investment strategies. Equity funds were hit the hardest, down 12.8%.

Sales of short-term bonds maturing within a year have boomed, with assets at domestic short-term bond funds up 85% this year.

Shenzhen-based Penghua Fund Management announced last week it had raised 1.58 billion yuan in its new medium and short-term bond fund.

Youmeili’s He said that investing in short-term bonds this year can generate relatively higher returns than currency bonds and bank deposit rates, while providing liquidity. This has made short-term bond investing one of the most popular strategies in 2022, he said.

Colight’s Feng said most of the inflows the fund has seen this year have gone into Tonghui No. 1 Fund, which focuses on low-risk corporate and fixed-rate bonds, with an average portfolio maturities of 1.86 years and no leverage.

Graphic: Money flows into China’s bond and equity funds – https://graphics.reuters.com/GLOBAL-MARKETS/zjpqjqlzqvx/chart.png

The challenge for such bond investors is that China is reluctant to cut rates further, due to concerns about a weakening yuan.

“We advise our customers to lower their expectations again and seek certainty, everyone should accept this reality,” said Feng.

(1 dollar = 7.2378 yuan)

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