Apparently caused by abundant interbank liquidity.
Total internet money market funds in China banks were noted to have experienced a slowdown, posting QoQ growth of 9.2% in 2Q14, a far cry from the 95.0% achieved in 1Q14.
According to a research note from CCB International, abudnant interbank liquidity is the cause of this, noting that the PBOC seems to be trying to create a more liquid interbank market as it injected liquidity throughout June to smooth interbank rates.
The report also noted that most internet MMFs have invested heavily in interbank deposits. For example, 92% of Yu-e-bao’s funds are invested this way.
However, abundant interbank liquidity has dragged down the return on interbank deposits making internet MMFs less attractive.
Here's more from CCB International:
Meanwhile, the resumption of IPOs in the A-share market has drained money away from MMFs. Internet companies in China are trying to boost fund sales by offering convenient services. However, thedeclining return on MMFs is liable to override the benefits of convenience.
If the return from Yu-e-bao continues to fall, its AUM is likely to decline accordingly.
Deposits syphoned off by internet MMFs should be replenished in short order as the returns offered by internet MMFs continue to tumble.
Yu-e-bao has fallen to 4.2% and is now less attractive than bank WMPs generating yields in the 5.5–6.0% range.
Monetary loosening, which by all appearances is now taking place, is likely to stabilize the asset quality of the banks and benefit their share prices.
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