GGlloobbaall aasssseett mmaannaaggeerrss’’ iinntteerreesstt iinn CChhiinnaa mmoonneeyy mmaarrkkeett ffuunnddss ttoo ggrrooww
Interest of global asset managers in Chinese RMB money market funds will continue to grow, although the market is still developing and certain hurdles remain apparent, according to a Moody’s report.
“Until recently, exchange controls restricted cross-border flows in and out of China, leading to large amounts of cash building up in multinational corporations’ local subsidiaries,” said Soo Shin-Kobberstad, a Moody’s senior analyst. “China’s liberalisation of trade and capital flows and the growing internationalisation of the RMB have not only raised the volume of RMB trades, but also bolstered investor confidence in the domestic capital market, leading more multinational corporations to manage their liquidity and strategic cash locally”.
The Moody’s analyst was speaking on the release of a new sector comment, “Global Asset Managers Tap Growth of China Money Market Funds” by Shin-Kobberstad and Evangelia Gkeka.
“A rising tide of institutional cash in China is driving demand for RMB money market funds as treasurers seek alternatives to simple bank deposits,” added Shin-Kobberstad, noting, “the surge of growth in multinational corporations in China over the past decade has fuelled demand for short-term RMB investments, as companies look for safe instruments to hold their increased liquidity.”
However, China’s money market funds sector remains underdeveloped, which will constrain the ability of international firms to manage risks fluidly. Specifically, it does not offer the same degree of diversification and credit quality that investors can find in the US or Europe.
Key challenges include the limited diversity of issuers, comparatively high price volatility and shallow liquidity of underlying securities.
This situation has created an opportunity for global asset managers to bring in international standards and best practices, the Moody’s report said. Over the past decade, firms including JPMorgan Asset Management, HSBC Global Asset Management, BNP Paribas Investment, Invesco and Deutsche Asset Management have formed joint ventures with local Chinese money market fund managers.
These international joint ventures are providing an alternative for Chinese companies and multinational corporations with Chinese operations seeking to invest cash across different types of investments beyond bank deposits. In the process, global asset managers are gaining access to a larger pool of potential clients.
While Moody’s says that the availability of granular data about joint-ventured Chinese money market funds is limited, it is also clear the industry has grown substantially since it started ten years ago. Assets under management held in more than 100 money market funds totalled almost RMB900 bln as of January 2014.