Chinese bond funds limit inflows as investors huddle together for shelter

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SHANGHAI — A growing number of bond funds in China have suspended subscriptions or capped inflows amid signs that money is surging into fixed-income products as stocks falter and banks cut deposit rates.

On Friday alone, more than a dozen bond funds announced measures to restrict new buying, according to documents filed by fund managers. According to Chinese newspaper China Fund, about 40 short-term bond funds have made similar statements over the past 20 trading days.

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Xia Haojie, bond analyst at Guosen Futures, said bond funds were looking increasingly attractive to investors at a time when banks are lowering their deposit rates.

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China’s top five state lenders cut individual deposit rates last week, a move that could help lower lending rates further to help the economy. The rate cuts came on top of reductions in some deposit rates in April.

A bond fund manager, who declined to be named, also blamed the bond flight on a bearish stock market and a tendency to take shelter ahead of the weeklong Chinese National Day holiday which begin October 1.

China’s blue-chip CSI300 index has fallen more than 20% so far this year amid a bleak economic outlook.

China Asset Management Co said on Friday it would reject individual subscriptions exceeding 1 million yuan ($140,300) per day to protect the interests of existing fund holders and enhance the stability of operations.

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Huatai-PineBridge Fund Management Co said in a separate statement that it will suspend the acceptance of new subscriptions.

Chinese bond funds have already seen their assets under management (AUM) jump 18% in the first seven months of the year to 4.8 trillion yuan, according to the latest data.

In contrast, assets under management for equity funds and balanced funds, which invest in both stocks and bonds, fell 7% and 14%, respectively, over the same period.

China may need to cut banks’ required reserve ratio (RRR) in the fourth quarter to maintain ample liquidity, the China Securities Journal reported on Saturday, citing economists. Looser monetary conditions could push bond prices higher. ($1 = 7.1266 Chinese yuan renminbi) (Reporting by Samuel Shen, Jason Xue and Brenda Goh; Editing by Clelia Oziel)

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