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Greater China

Mar 15, 2005

China's money market booms, yields strong

BEIJING - Issuance of money market funds in China has boomed in recent months due to satisfying yields.

According to statistics, a total of 14 such funds with a total capitalization of over 100 billion yuan (US$12.1 billion) had been issued in the country by early March since the country's first money market fund was launched just a bit over a year ago.

Just two months earlier at the end of 2004, however, there were only nine money market funds with a total capitalization of 63.3 billion units (in denomination of one yuan).

Market analysts widely attribute the issuance boom to satisfying yield of such funds, which hit 3.19% (annualized) in February, much higher than the 2.25% (before 20% taxation on interest income) for one-year fixed deposits put at banks.

In current circumstances when the domestic share prices have lost more than 40 over the past four years, money market funds, which mainly invest in bonds and bank deposits, are also superior to securities investment funds in terms of market risks.

It is estimated that the static annualized yield of money market funds from interest income of investment in bonds, particularly bond repurchases, bank deposits interest income and other lawful incomes together now hits 2 to 2.5.

Continuous sharp hikes of bond and central bank bill prices since November last year have been a principal factor behind the sharp rises of money market funds yield.

Annualized yield of money market funds actually began to climb all the way since March last year, from 1.8 to 2.6 by September, 2.8 by November, 3.0 by December and nearly 3.2 by February. The annualized yield of most money market funds stood above 3 in January and February this year. It even topped 3.5 cent in the last week of February.

However, some fund managers said that it would be difficult to keep such a high yield level of above 3 for a long time mainly because the bullish bond market could not last long.

(Asia Pulse/XIC)

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