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Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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