Mainland money market funds (MMF) saw a 40 per cent plunge in assets under management during the second quarter of the year as volatile conditions in the fledgling interbank lending market triggered a flood of redemptions, according to analysts at ratings agency Fitch.
Total assets under management fell to 304 billion yuan (HK$385 billion) at the end of the second quarter, Fitch calculations showed, an unprecedented fall in the so far short history of mainland money market funds.
"While Chinese MMF asset flows are normally volatile, the outflows were far beyond normal seasonal cash needs of investors towards quarter end," Fitch said in a statement.
Institutional money market assets sank nearly 50 per cent to 136 billion yuan, with around 70 per cent of all institutional funds reporting outflows. A quarter of institutional funds lost more than half of their assets, Fitch said.
The scale of withdrawal was so large that the institutional share of the overall money market sank below that of the retail sector, ending the quarter with a share of roughly 45 per cent.
Outflows were driven by a combination of increasing nervousness about fund liquidity, the potential for the imposition of redemption limits and the higher interest rates that banks were offering to secure deposits as the central bank clamped down on the financial system.
The relative stability in interbank liquidity since the end of the second quarter should help the funds repair and recalibrate their asset bases, Fitch said.
"We expect Chinese MMF managers will reassess the liquidity profile of their funds on this experience and increase the share of short-term holdings. Managers may also re-consider the diversity and stability of fund investors and, if needed, alter their investment strategy to mitigate concentration risks," it said.