PeerView℠: Demand for MMFs funds remains strong as treasurers are concerned about political, credit and default risks
At a time when falling rates have reanimated the cash management challenges across the globe, treasurers are looking more than ever to search for yield that does not come at the expense of liquidity and security. Enter the 2019 J.P. Morgan Global Liquidity Investment PeerViewSM survey, which sheds light on the most prevalent portfolio strategies, liquidity concerns and cash solutions that treasurers use today.
Over the past two decades, China has witnessed a substantial period of economic growth helped by robust exports and rapidly developing domestic markets. Underpinning this economic growth has been a massive increase in the size and scope of its fixed income markets: a combination of interest rate and financial market liberalization triggered a surge in the range of credit issuers, instruments and structures available.
Around the world, we continue to see growth slowing, trade tensions rising and interest rates falling. The US Federal Reserve has already responded by cutting interest rates in July and financial markets are expecting further easing. The European Central Bank (ECB) is preparing to follow in the Fed’s footsteps and start a programme of monetary easing. Markets have already priced in a 10-basis point (bp) cut to the deposit level in September, which today stands at -40 bps, while forward projections go as low as -70 bps by July 2020.
What are the implications of Asian currency weakness for cash investors?
Asia-Pacific currencies have weakened significantly over the past few months, culminating in the Chinese renminbi breaching the psychologically important seven per US dollar level on 7 August. The Australian dollar has also hit a decade low against the US dollar at 0.6756, the Hong Kong dollar moved to the weaker end of its trading band against the US dollar at 7.8464, and even the safe haven Singapore dollar hit a nine-month low against the US dollar at 1.3847.
The definition of cash, while ostensibly straightforward – banknotes and coins – becomes increasingly challenging when the demands for higher returns counteracts the obligation to ensure adequate liquidity and the commitment to avoid losses.