Ant Financial Services Group's move to lower the same-day withdrawal amount for its China-based Yu'E Bao money market fund is credit positive as it strengthens the stability of the country's fund industry.
Moody's said in its May 24 credit outlook that Ant Financial's reduction of the same-day withdrawal amount in Yu'E Bao signals that the largest player in the Chinese fund industry is taking active measures to mitigate liquidity risks. Yu'E Bao has 14% of the total assets of the mutual fund industry with more than 470 million users.
The Alibaba Group Holding Ltd. payments affiliate had announced May 15 that it will lower the maximum same-day redemption amount from Yu'E Bao to 10,000 yuan per investor from 50,000 yuan, beginning June 6.
A lower redemption limit will reduce the risk of large unexpected redemptions and will also lower the risk of disruptions to redemption payment and the risk of higher market losses in case of liquidation. Yu'E Bao''s enhanced risk management approach also reflects resolve to boost resilience to market stresses.
The measures are also in line with regulators' efforts to control systemic risk particularly as the country's money market fund market has grown significantly in the last few years. China's money market funds hold more than 60% of the total assets of the mutual fund industry.
As of May 23, US$1 was equivalent to 6.39 Chinese yuan.
