Our recent webinar, ‘Cash Investments in APAC – Trends and Market Insights’, held on April 2nd ahead of US President Donald Trump’s announcement of sweeping tariffs on China, the UK and many other countries, discussed the evolving challenges – and opportunities – for cash investments across the region.
While most developed market economies are in a period of taming inflation and accommodative monetary policy, the chaotic policies announced by the Trump administration is reverberating across the world. Overall, global growth is expected to slow in 2025. Many emerging markets will be negatively impacted as the US focuses on domestic growth and production.
“Increased tariffs – which the US administration thinks is a silver bullet solution – will prove to be unfortunate for the global economy,” said Will Goldthwait, Vice President, Client Portfolio Manager at State Street Global Advisors (SSGA). “While we don’t know yet what that will look like, tariff is just another word for tax and raising taxes is an anti-growth strategy.”
From an interest rate policy perspective, SSGA expects the Federal Reserve to cut interest rates three more times in 2025. Currently, the market is pricing in two cuts for the Federal Reserve, Bank of England and the European Central Bank (ECB). However, the ECB has moved more quickly and is already 150 basis points into its cutting.
Inflation expectations, both near and medium term, have increased. Many corporates are building up inventory, as businesses accelerate purchasing in expectation that prices will rise. They are also hoarding cash in case of need or opportunity, much of which is sitting in short-term, liquid investments such as money market funds (MMFs).
Active cash management
In response, corporate treasurers and institutional investors are exploring how to get the best out of their short-term cash investments, looking at MMFs, earnings credit and technology credits, as well as engaging with technology platforms. “Today, treasurers need to be more active and benchmark their cash, ensuring that they maintain key objectives,” said Goldthwait.
While focused on safety and liquidity, they also want a better yield. “By actively managing their cash, treasurers can save or make money for their company, which could be used for more full-time employees, technology upgrades, etc,” he said. “Cash needs to be put to work, particularly for those sitting on a lot of cash.”
SSGA clients are attracted to MMFs products because they want the liquidity, safety and control, according to Goldthwait. He pointed out that not only are MMFs regulated, but are also covered by global rating agencies, such as Moody’s, S&P and Fitch.
In Goldthwait’s opinion, MMF yields will stay higher for longer than a bank deposit. In addition, duration can be added to MMF portfolios. “While MMFs are a T+0 vehicle, providing an investor access to their liquidity at any time, we can position the portfolio with 20 to 60 days of duration,” he explained. “Therefore, assets within the portfolio will continue to yield higher even after the central bank lowers the policy rate.”
Sam Siddiqui, Vice President, Asia Pacific Cash Sales, SSGA, reported continued interest in MMFs in Asia Pacific following the initial US Federal Reserve cut in September 2024, however the region is still in an education phase when it comes to this type of investment product.
“A wider range of corporate treasury, hedge fund and asset managers are beginning to ask for fact sheets and prospectuses to understand how MMFs work,” Siddiqui said. “Local banks that don’t offer MMFs are looking at how they can partner with SSGA and use MMFs as a complement to their bank deposit offerings. We’re in an interesting phase exploring how MMFs will be adopted by banks and our end clients.”
He is also seeing an increased focus on achieving the aims of safety, reliability and liquidity. “Investors should utilise MMFs from a risk diversification angle, as well as ensure that they are spreading risk by working with multiple banks to avoid single bank exposure,” he added.
However, many investors might not view MMFs as an important part of short-term cash management in a yield-hungry environment like APAC. If that’s the case, then they aren’t looking at MMFs for the right reasons, Siddiqui argued.
“MMFs help diversify risk, provide safety, stability and access to cash. In a higher rate environment, it’s important to get the best out of short-term cash strategies and MMFs can help,” he says. As such, he usually suggests to clients with excess or uninvested cash to put it into an MMF, as your cash will be put to work, and also help with diversification from a fixed-term bank deposit. “Most treasurers don’t want to keep going back to their banks to renegotiate every time there is a Fed rate cut,” he added.
Due diligence
While MMFs have many advantages, investors need to scrutinise fact sheets and prospectuses to understand different types of cash management vehicles and their inherent risks.
To mitigate MMF risk, investors should look at where the portfolio is domiciled and investment limitations, according to Goldthwait. “For example, if an investor wants a strategy that has no credit risk, then they should look for an MMF that can only invest in sovereign debt,” he advised. “If they do invest in credit, such as banks or corporates, then they should look at the holdings to see which names are there.” He also suggested looking at the duration parameters, such as maturity length, which is usually limited to 13 months, with some exceptions such as US Treasuries, German Bunds and French OATs.
From an APAC perspective, Siddiqui adds that investors should look at whether the MMF actually has access to liquidity on a T+0 basis. “While many MMFs are registered in APAC, trading is done outside of the region, which doesn’t necessarily mean investors will get their cash back on the same day,” he explained. “As such, investors need to do due diligence that the trading function sits in the Asia region to ensure that they can access cash same day, in terms of both subscription and redemptions.”
Asset tokenisation
The most interesting recent development in the MMF space is the emergence of tokenisation, which presents the ability to having a cash vehicle but in a token format.
“This allows for better efficiency, transferability and accessibility,” said Siddiqui. “One of the main use cases is to deploy cash tokens for collateral purposes.”
According to Goldthwait, a tokenised MMF would be open 24 hours a day, seven days a week, so a treasurer can move money anytime they want. “They won’t have to wait for the US market to open to receive their money, which will help our clients solve some of the challenges they face accessing their money,” he said. “It will be like payment apps where the cash is transferred in an instant and the transaction is immutable – that’s the direction the institutional side of the business needs to go in.”
The Monetary Authority of Singapore is working on Project Guardian with an international ecosystem of policymakers, financial institutions and associations to design an industry framework for asset tokenisation.
While adoption is currently slow outside crypto-native platforms, Siddiqui believes that adoption will increase once regulating bodies provide guidance on how tokenised MMFs can exist within the current security laws. “Adoption will be driven by supportive regulation, liquidity in secondary trading and connectivity to exchanges, both crypto and traditional,” he said.
