(Bloomberg) — China has asked its financial institutions to beef up monitoring of the nation’s wealth management products, people familiar with the matter said, after investors pulled some $149 billion to chase a rally in stocks.
Regulators recently ordered lenders, fund houses and fund distributors to monitor changes in the scale of WMPs on a daily basis, according to the people, asking not to be identified discussing a private matter.
Banks were also asked to report on their ability to meet short-term redemptions, after a rapid rebound in the stock market triggered a flood of investor withdrawals from fixed-income products, the people said. Authorities gave similar instructions to banks in late 2022, after an earlier bond selloff triggered investor redemptions.
While it’s unclear if authorities would take any further action, the enhanced monitoring is a precautionary measure aimed at preventing possible damage to bond markets, the people added. Some banks have informed regulators that they plan to buy bonds through proprietary trading desks to mitigate potential redemption risks, one of the people said.
The National Financial Regulatory Administration and the People’s Bank of China didn’t immediately respond to requests for comment.
The guidance underscores regulators’ concern that a downward spiral of WMP redemptions and falling bond prices may stoke financial instability. The Chinese stock market euphoria — spurred by Beijing’s economic stimulus measures — has prompted retail investors to pull money from WMPs and bond-focused mutual fund products, fueling a decline in corporate bond prices and accelerating withdrawals.
China’s balance of wealth management products shrank by 1.05 trillion yuan ($149 billion) from Sept. 22 to Oct. 6, according to Bloomberg calculations based on data from Puyi Standard, a consultancy firm that tracks China’s asset and wealth management industry.
The corporate bond market was the first to take a hit, as corporate notes accounted for about 41% of total WMP balance as of June, official data show. Sovereign or quasi-sovereign bonds took up less than 3%.
The average yield on three-year AA rated company notes has climbed more than 22 basis points this week to 2.71%, set for the biggest weekly jump in nearly two years, according to a Chinabond index. The spread on three-year junk corporate bonds over sovereign notes rose to the highest in a year.
China’s Ministry of Finance — typically tasked with issuing bonds to support stimulus measures — will hold a briefing on fiscal policy on Saturday as investors look for additional measures to stimulate the world’s second largest economy. China’s economic planning agency didn’t follow on with any major pro-growth steps at the government’s first briefing on Tuesday after the week-long national holiday.
