Chinese money market funds (CMMFs) have become more oriented towards institutional investors despite their historical retail focus, according to a new report from Fitch Ratings. In this regard, Fitch believes CMMFs would benefit from greater product differentiation to better reflect institutional investors’ priority on liquidity and credit quality over the traditional focus on yield.
"CMMFs provide an effective tool for working capital management of eligible institutional investors, primarily domestic entities and multinational investors which are legally organised and operating in China as well as others eligible under the qualified foreign institutional investors’ scheme," says Roger Schneider, Senior Director in Fitch’s Fund and Asset Manager team. "However unlike in certain jurisdictions, no framework has yet been established for conservative liquidity funds in China such as short term MMFs in Europe or prime MMFs in the US."
Fitch expects an increasing proliferation of CMMFs targeting institutional investors and ongoing investments in high quality funds managed by seasoned specialist investment teams. The agency further notes that the evolving Chinese commercial paper market will add more choices for all CMMFs. Fitch assigns its top rating ‘AAAmmf(chn)’ to funds with strong capacity to preserve capital and provide shareholder liquidity. The agency will shortly publish a report that details rating considerations for CMMFs, within the framework of its National Money Market Fund rating criteria.
The CMMF market is regulated by China Securities and Regulatory Commission and has a long track record. At end-2011 51 funds were established with CNY294.8bn (EUR35.8bn) of assets under management. However, the market is concentrated in 10 management companies, which control about 63 % of total assets at end-2011.
"Volatility in CMMFs’ assets under management is significant and presents a key challenge for liquidity management. However, the agency expects the growing share of institutional investors to stabilise the asset base in the long term," says Schneider.