LIQUIDITY conditions at China’s non-bank financial institutions have tightened this month as traders redeemed cash to ride the upswing in local shares.
That’s widened the gap between the funding costs of non-bank financial institutions and banks. The differential has remained large after rising to a six-month high on Oct 9.
The main reason for the funding squeeze at non-bank firms is redemptions faced by their wealth management companies, according to Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. “Gains in bond yields led to an increase in redemptions of wealth management products and bond funds, which is also exacerbated by the jump in stocks.”
Investors are making a beeline for Chinese stocks as the outlook for the economy improves following a raft of measures from authorities to rebuild confidence. Meanwhile, traders have turned lukewarm on bonds amid concern over heavy sovereign debt supply as a red-hot rally petered out.
Chinese Wealth management products, a majority of which invest in bonds, saw an outflow of 207 billion yuan (S$38 billion) last week, according to China Merchants Securities. That compares with sales of 67 billion yuan in the previous week.
“There may be rising funding needs due to equity leverage, especially for non-bank financial institutions,” said Becky Liu, head of China macro strategy at Standard Chartered. BLOOMBERG
