China bond funds restrict inflow as investors pile in

SHANGHAI: A growing number of bond funds in China have suspended taking subscriptions or capped inflows, amid signs money is gushing into fixed income products as stocks wobble and banks cut deposit rates.

On Friday alone, more than a dozen bond funds announced measures to restrict new purchases, according to fund managers’ filings.

Around 40 short-term bond funds made similar statements in the past 20 trading days, according to Chinese newspaper China Fund.

Xia Haojie, bond analyst at Guosen Futures, said bond funds looked increasingly attractive for investors at a time when banks are lowering their deposit rates.

China’s top five state lenders cut individual deposit rates last week, a move that could help bring down lending rates further to aid the economy.

The rate cuts came on top of reductions in certain deposit rates in April.

A bond fund manager, who declined to be named, also attributed the flight to bonds to a bearish stock market, and a tendency to seek shelter ahead of the week-long Chinese National Day holiday that starts Oct 1.

China’s blue-chip index CSI300 has tumbled more than 20% so far this year amid gloomy economic prospects.

China Asset Management Co said in a statement about a bond product on Friday that it would reject individual subscriptions exceeding one million yuan (US$140,300 or RM642,574) a day to protect the interest of existing fund holders and strengthen stability of operations.

Huatai-pinebridge Fund Management Co said in a separate product statement that it would suspend accepting fresh subscriptions.

Chinese bond funds have already seen their assets under management (AUM) jump 18% during the first seven months of the year, to 4.8 trillion yuan (RM3.1 trillion), the latest data showed.

In contrast, the AUM of equity funds and balanced funds, which invest in both stocks and bonds, dropped 7% and 14% respectively during the same period. China may need to cut banks’ required reserve ratio (RRR) in the fourth quarter to keep liquidity ample, the official China Securities Journal reported on Saturday, citing economists.

Easier monetary conditions could push bond prices higher.

Chinese investors are also boosting investment in offshore debt under the Bond Connect scheme as US interest rates and the dollar rise sharply.

— Reuters Safe haven: The new Beijing Stock Exchange at Financial Street is seen in this file photo. The bearish stock market has been attributed to the flight of cash to bonds.