China’s cash funds are losing billions in the rush back to the stock market

(Bloomberg) — Billions of dollars have flowed out of China’s biggest exchange-traded funds, while billions more have flowed into ETFs that track stocks, signaling that Beijing has finally lured skeptical investors back to the stock market of the country, in difficulty.

Bloomberg’s most read

Last week, China’s 10 largest money market ETFs saw combined outflows of $4.1 billion, while the 10 largest equity ETFs attracted $6 billion in new capital. That change followed fresh stimulus measures that fueled the best week for continental stocks since 2008.

The outflows were concentrated in two of the biggest cash funds: Yinhua Traded Money Market Fund, which lost $2.4 billion, and Hwabao WP Cash Tianyi, which lost $1.7 billion, accounting for more than 10% of each fund. Flows among the top 10 equity funds were led by the Huatai-Pinebridge CSI 300 ETF, which attracted $2.9 billion.

In a surprise wave of stimulus aimed at supporting the economy and financial markets, China has slashed borrowing costs, relaxed rules on buying second homes and issued cash handouts. The move to include tax incentives was a big factor behind the market reaction, according to Nick Ferres, chief investment officer for Vantage Point Asset Management in Singapore.

“The scale of what they’ve done so far isn’t enough, but the direction is definitely key — that’s important,” Ferres said in an interview.

Money market funds around the world attracted capital as interest rates in many developed market economies were raised to combat inflation. In China, where deflation has become a greater challenge, investors have turned to such products, in part because of the country’s prolonged stock market decline. Demand for these investments helped even non-bank financial institutions avoid seasonal liquidity crises.

Investors should “buy first, think later,” Britney Lam, head of long-short equities for Magellan Investments Holdings Ltd., said in a note on rising Chinese stocks. The recent stimulus is similar to measures unveiled a decade ago, which included propping up local government debt, and those steps have driven stocks higher, she said.

“This looks like a repeat of the same thing, so don’t miss the rally by focusing on economic data that is lagging in nature,” Lam said. “Like all market cycles, multiples move on sentiment first, then fundamental changes come.”

The story continues

Bloomberg Businessweek’s most read

©2024 Bloomberg LP