SHANGHAI, (Reuters) – Chinese investors have begun to abandon equity funds in favor of investing in bonds, deposits, and money market products. Stocks are plummeting and a gloomy outlook has reduced demand for risky assets.

Fund managers are trying to limit the flow of money into certain deposit-investment vehicles because it is so fast, but they have begun to restrict flows in order not allow for excessive growth.

The banks are being pressured to put money into commercial paper rather than corporate loans. Beijing is unable to direct more credit into its pandemic-hit economies because of risk aversion.

Fund consultancy Z-Ben Advisors reports that China’s fresh funding by equity and balanced mutual funds dropped 83% in the period Jan-April from last year to 154.6 Billion Yuan ($23 Billillion).

Ivan Shi from Z-Ben, the head of research, stated that the slump in demand was not caused only by A-share market weakness but also persistent Chinese equity fund underperformance.

A benchmark index lost 17%, while an index measuring the performance of Chinese active-equity funds fell 25%. The index has seen a 25 percent drop so far in this year.

Shi explained that it was difficult to predict a rebound in fund flow unless managers outperform the market.

Zoey Qin in Shanghai is a bank manager.

“DARE NOT TO BUY”

After the Ukraine-Russia crisis, and Shanghai’s COVID-19 lockdown, risk appetite seems to have waned. Z-Ben data shows that bond fundraising has increased by 27% in the past year, to 127 Billion Yuan.

Money is flowing into bank accounts and money market funds at the same time.

China Merchants Fund Management Co launched a fund that invests interbank certificates or deposits (NCDs), on April 26. It exceeded its initial fundraising goal of 10 billion Yuan.

Several similar deposit-investment products have started to restrict money inflows during the last week, preventing their funds from growing.

The property market is slow, so you shouldn’t buy stocks. Rocky Fan, an economist with Guolian Securities, said that it is natural to move your money into money markets funds, bonds or deposits.

Fan also noted signs that banks may not be able to loan to companies and are instead putting money in the secondary market. The bankers’ acceptance bills are short-term, collateralized payments instruments that can be considered loans. However, they do not channel new cash into the real economy.

The Shanghai Commercial Paper Exchange reported that the yields on 7-day acceptance bills and 1 month bills decreased to 0.0281% at April’s end and to 0.0466% by April 31.

Fan explained that when you see yields as low as these, this usually means the market for bill products is flush with cash, but that there is severe demand to borrow money.

It means that banks can’t find enough clients to lend money to.”