INVESTORS in China are switching to the stock market from safe-haven money market funds (MMFs) as they bet on a speedy recovery and continued policy support for a pandemic-stricken economy.

Fund consultancy Z-Ben Advisors estimated that there were outflows of 1.23-2 trillion yuan (US$175-285 billion) from China’s MMFs in the second quarter.

“A key driver [for the stock market rally] this time is retail investors aggressively redeeming from money market funds and redeploying the proceeds into newly-issued equity funds,” the consultancy said in a report.

The outflows were in line with a sharp drop in the number of units in money market funds.

Hwabao Tianyi ETF, the largest money market ETF listed on the Shanghai Stock Exchange, saw its total units decrease by 22 percent to 714 million July 13, from 913 million in April.

Fund managers likely needed to sell securities in money market to deal with massive redemption, tightening liquidity and pushing up money market rates.

The switch could last for the long run, as investors now have few other options in terms of investments, said Fu Yanping, an analyst with China Galaxy Securities. Fu added that properties are not attractive, while defaults in trusts and banks’ wealth management products also help keep investors away.

The switch occurred alongside a sharp rally in China’s A-share market. China’s blue-chip index and the Shanghai Composite Index rose 13 percent each in the second quarter. The tech-heavy startup index outperformed with a 30 percent rise in the second quarter.

By comparison, the seven-day annualized returns offered by most Chinese MMFs are around 2 percent.(SD-Agencies)