China bond funds limit investments as investors swarm in for safety

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Last Updated on September 24, 2022 by Bitfinsider

There are hints that investors are pouring money into fixed income products as the stock market sways and banks lower deposit rates, and an increasing number of bond funds in China have stopped accepting subscriptions or limited inflows.

More than a dozen bond funds alone declared restrictions on new acquisitions on Friday (Sep 23), according to fund managers’ disclosures.

According to the Chinese daily China Fund, some 40 short-term bond funds made similar claims over the course of the previous 20 trading days.

When banks are cutting their deposit rates, according to Xia Haojie, a bond analyst at Guosen Futures, bond funds appear to be more and more appealing to investors.

The top five state lenders in China reduced their individual deposit rates last week, which may assist further lower lending rates to support the economy. The rate cuts followed decreases in some deposit rates in April.

An unnamed bond fund manager also ascribed the bond market flight to a gloomy stock market and a propensity to seek safety ahead of the week-long Chinese National Day holiday, which begins on October 1.

Blue-chip index for China CSI300 has decreased by more than 20% so far this year due to the bleak outlook for the economy.

China Asset Management announced on Friday that it would refuse individual subscriptions totaling more than 1 million yuan (US$140,300) each day in order to safeguard the interests of current fund holders and improve operational stability.

In a separate statement, Huatai-PineBridge Fund Management announced that it will stop taking new subscribers.

According to the most recent data, Chinese bond funds’ assets under management (AUM) increased by 18% over the first seven months of the year to 4.8 trillion yuan.

In contrast, the assets under management (AUM) of equity funds and balanced funds, which invest in both stocks and bonds, fell by 7% and 14%, respectively, over the same time period.

According to experts cited by the official China Securities Journal on Saturday, China may need to reduce banks’ minimum reserve ratio (RRR) in the fourth quarter in order to maintain enough liquidity. Bond prices may rise if monetary conditions ease.

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