There are quite a lot of “shell” funds in the market due to redemption of outsourcing entrusted funds of banks.
As of the end of the second quarter, there are 77 bond funds with less than 50 million shares, threefold of 20 from a year earlier, according to data from Wind Info.
Redemption of outsourcing entrusted funds of banks surfaced gradually. Statistics showed that the amount of bond funds posted 1.74 trillion yuan in the second quarter, decreasing by 245.078 billion yuan, or 12.32 percent, from 1.99 trillion yuan in the first quarter.
An industry insider indicated that owing to deleveraging in financial sector, institutional investors chose to retreat from the market and the outsourcing entrusted customized bond funds, which were very popular previously, suffered redemption. There are as many as 77 bond funds with less than 50 shares and the smallest bond fund only has 20,000 shares.
Amount of bond funds decreases due to redemption of outsourcing entrusted capitals of banks
As deleveraging is carried out in financial sector, outsourcing entrusted funds begin to be withdrawn. Some funds of companies including ICBC Credit Suisse Asset Management Co., Ltd. saw huge redemption in the second quarter.
In addition, 8 bond funds issued by CIB Fund Management Co., Ltd. and UBS SDIC Fund Management Co., Ltd. witnessed net redemption of over 5 billion shares in the second quarter.
“Some banks redeemed and discontinued funds worth about 20-30 billion yuan just now. In fact, our products enjoyed good yield ranging from 4.8 percent to 5.7 percent. Clients which made the redemption were mostly rural commercial banks and urban commercial banks,” a head at a fund company in South China told the reporter of the 21st Century Business Herald.
A head responsible for market department of a joint-stock bank said frankly that there’s redemption in their products. “However, clients usually redeemed funds step by step instead of at a blow. They would inform fund companies in advance.”
This head said there were two major reasons for the redemption. Firstly, financial deleveraging brought capital strain. Particularly, the capital needs to cope with demand for liquidity at the end of a quarter. Secondly, as bond market experienced adjustment in the first half of this year, performance of some products was poor. In view of capital security, they choose to redeem the fund. But as for the amount of funds which were redeemed, the head said that “the amount is not very huge as we don’t have much funds entrusted by banks.”
Chi Guangsheng, an analyst at Industrial Securities, said that the amount of entire outsourcing entrusted funds recorded 10-11 trillion yuan. 90 percent of the capitals are invested in bonds and other products with fixed income and 10 percent in stock market. “Outsourcing entrusted products boomed in the second half of last year. Many products opened positions in October or November of last year. But the bond market reached the bottom just at that time, so they suffered great losses. We learnt that most outsourcing entrusted capitals were required to reach 4.5 percent, but only few products met this requirement.”
According to statistics from Hithink RoyalFlush Information Network Co., Ltd., more than 200 bond funds suffered loss in the second quarter. The highest decline in earning of bond fund reached 8.49 percent and that of 29 bond funds fell by over 2 percent during three months. “Liquidity was quite tight in the second quarter. The decline of 8.49 percent in one quarter is remarkable, which will become 34 percent on an annual basis. This will be a great change for bond funds and even for equity fund,” said Li Xiaofang, an analyst at research center of Beijing Hengzhang Fund.
More insurance capitals may be invested in bond funds
There are quite a lot of “shell” funds in the market due to redemption of outsourcing entrusted funds of banks.
As of the end of the second quarter, there are 77 bond funds with less than 50 million shares, threefold of 20 from a year earlier, according to data from Wind Info. There were only 20,000 shares of a fund issued by CCB Principal Asset Management. Public information showed that this fund was established with amount of 200 million yuan on November 15, 2016. It was subscribed by 229 investors and was a medium and long-term pure bond fund.
The redemption of outsourcing entrusted products is likely to continue in the second half. Liu Yuhui, chief economist with TF Securities, stated that financial bubbling is rather serious at present. “Financial leverage is too high and the market is very crowded. Technically, the leverage has to be lowered to make the market condition smooth. Regulations should strengthen financial supervision to clear potential danger. Governance over interbank and wealth management business of banks has been upgraded. To some extent, it is a process counter-financial liberalization.”
Li added that the bond market still faced redemption of outsourcing entrusted funds, discontinuation of bond funds upon expiration and decline in issuance.
But due to withdrawal in the second quarter, driving forces may weaken in the third quarter. The market expects the economy will see rapid growth in the first half but slow growth in the second half. Economic fundamentals provide supports to the bond market. The market keeps cautious and optimistic about the future of bond market.
“Many outsourcing entrusted funds flooded into the bond market in the third and fourth quarter of last year. If based on the one-year term, these bonds may see a peak of redemption in the second half of this year. But after the adjustment in the first half of this year and the absolute yield rate of debenture bonds are quite attractive now, insurance institutions may increase investment in bond assets. Especially after share purchase through secondary market to the five percent limit is restricted, insurance capitals need to find investment channel and their power cannot be neglected.” An official from a third-party institution told the reporter.
Translated by Vanessa Chen
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