China's weak economy spurs furious demand for bond funds
By Samuel Shen and Summer Zhen
SHANGHAI/HONG KONG, Dec 1 (Reuters) -Mutual funds that hold bonds are selling like hot cakes in China as investors bet the central bank will cut interest rates further to aid the struggling economy.
More than 50 bond-focused mutual funds were launched in November, raising 105 billion yuan ($14.71 billion) in total -- the biggest monthly fundraising this year, according to data from fund consultancy Z-Ben Advisors.
Money has also been gushing into existing bond products, forcing mutual funds to limit subscriptions to more than 100 such bond fund products over the past month.
Despite a recent pause in the bond run, "it's still good timing" to buy bonds, said Alvin Cheng, portfolio manager at Fidelity International's China unit, which raised 5 billion yuan for a bond fund last month.
China needs an accommodative monetary policy to support its arduous economic restructuring, so "interest rates will likely trend lower", he said. That bodes well for bonds, whose prices move inversely with rates.
Expectations of a robust post-COVID recovery in China have been dashed by a deepening real estate crisis that is weighing heavily on consumer confidence, local government debt woes, weak exports and geopolitical tensions. Despite a host of policy measures and monetary easing, data shows the economy remains wobbly.
Bonds have been volatile as Beijing rolled out spending plans while keeping rates from falling too much, with an eye on supporting the weak yuan. Ten-year yields CN10YT=RR are down roughly 35 basis points this year.
Analysts expect such constraints to be removed next year as U.S. rates peak and are possibly cut, weakening the dollar. Standard Chartered Bank forecasts the People's Bank of China will cut both policy rates and banks' reserve requirements in the first half of 2024.
That prospect has spurred frenetic buying of fixed-income products.
Chinese bond mutual funds .CSI930610 have delivered a return of 2.9% so far this year on average, compared with a loss of 12% for equity funds .CSI930890.
Bonds-focused hedge funds outperformed other strategies, delivering a return of 7% for investors, according to Shanghai Securities Co. data.
Schroders Plc's China mutual fund subsidiary said it will launch a bond-focused product in early December to help investors "seize market opportunities."
Zhang Hezhang, a bond fund manager at TruValue Asset Management, said during a roadshow that "it's rewarding to buy bond funds now" as stocks are volatile and returns from bank deposits have become razor-thin.
China is no longer reliant on high economic growth driven by property and infrastructure, and its painful economic restructuring "requires lower risk-free interest rates, which would push up bond prices," he said.
($1 = 7.1397 Chinese yuan)
Chinese bond funds https://tmsnrt.rs/49YB6Jj
Reporting by Samuel Shen and Summer Zhen
Editing by Vidya Ranganathan and Kim Coghill
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.