In a dramatic shift, investors are abandoning China’s massive money market exchange-traded funds, opting instead for ETFs tied to equities, signaling a renewed confidence in the country’s beleaguered stock market. This reversal comes on the heels of Beijing’s latest stimulus package, which has injected new life into the market.
Last week, the 10 largest money market ETFs in China experienced a combined exodus of $4.1 billion, while their equity-focused counterparts attracted a whopping $6 billion in fresh capital. This sudden about-face follows a series of bold stimulus measures that propelled mainland stocks to their best performance since 2008.
The bulk of the outflows came from two of the largest cash funds: the Yinhua Traded Money Market Fund, which hemorrhaged $2.4 billion, and the Hwabao WP Cash Tianyi, which shed $1.7 billion, equivalent to over 10% of each fund’s assets. Meanwhile, the Huatai-Pinebridge CSI 300 ETF led the charge among equity funds, drawing in a staggering $2.9 billion.
China’s surprise stimulus package, which included cuts to borrowing costs, relaxed rules on second-home purchases, and cash handouts, has been hailed as a game-changer by market analysts. According to Nick Ferres, chief investment officer for Vantage Point Asset Management in Singapore, the inclusion of fiscal stimulus measures has been a key driver behind the market’s reaction. “The direction is definitely pivotal – that is important,” Ferres noted.
In recent years, money market funds have been a safe haven for investors seeking refuge from inflationary pressures in developed markets. However, in China, where deflation has become a growing concern, investors have flocked to these products, partly due to the prolonged slump in the country’s equity market. This demand has even helped non-bank financial institutions navigate seasonal liquidity crunches.
Britney Lam, head of long-short equities for Magellan Investments Holdings Ltd., urges investors to seize the moment, citing the rally in Chinese equities as akin to measures unveiled a decade ago, which sent stocks soaring. “This looks like a replay of the same, so don’t miss the rally by focusing on economic data that are lagged in nature,” Lam advises.
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