Money management firms in China this year are seeing an Internet-fueled flood of assets into money market funds from a new generation of investors, a potential game changer in a region where people continue to keep the vast bulk of their savings locked in low-yielding bank deposits.
The potential will depend on how successful the money managers and their Internet partners can be in getting their customers to move beyond money market funds and into a broader range of asset classes.
For now, a combination of bank deposit rates kept artificially low by China's central bank and new products allowing customers to use the Internet to shift as little as one yuan into money market funds earning 5% or more are giving that “digital” market segment the feel of a one-trick pony.
In the first two months of 2014, inflows into money market funds accelerated to almost 700 billion renminbi ($113 billion), powering a dramatic 90% increase in their assets under management to 1.42 trillion renminbi, even as equity and bond fund assets stagnated, according to data provided by the Beijing-based Asset Management Association of China.
As a result, money market funds claimed a 40% chunk of China's 3.6 trillion renminbi in mutual fund assets as of Feb. 28, up sharply from 25% of a smaller 3 trillion renminbi pie at the end of 2013.
Meanwhile, that 700 billion renminbi would account for a roughly 1.6% chunk of the 43 trillion renminbi in Chinese bank deposits as of late 2013.
Tianjin-based Tianhong Asset Management Co. Ltd.'s partnership with Beijing-based Internet payment platform giant Alipay has led China's Internet boom, gathering an estimated 500 billion renminbi by the end of March for its money market fund since mid-2013. More than 300 billion renminbi of that total has come since the start of 2014.
A growing number of imitators have come to market this year, including the launch in January of a partnership between Beijing-based China Asset Management Co. Ltd. and Internet payment heavyweight Tenpay, which has gathered estimated inflows of more than 100 billion renminbi so far.
Xiaoming Zhou, vice president of Tianhong Asset Management, said in a March interview that the inspiration for his firm's trail-blazing product was the fact that mutual fund clients were spending “more and more time online,” making it essential for Tianhong to follow them there. The new technology could help the firm connect with customers “we couldn't have reached before,” he added.
On both scores, Tianhong and its imitators appear to be enjoying considerable success.