2018 ended with investors very much in risk-off mode. Markets wilted under pressure from several headwinds, including concerns about trade wars, a US recession, a global slowdown, Brexit, Italian fiscal policy, French fuel protests, leverage in the credit markets and deteriorating market liquidity.
Although China’s bond market is the third largest in the world, with USD 9 trillion outstanding, the concept of corporate bond defaults – or indeed downgrades – has until now been alien to the vast majority of local retail and institutional investors. However, with default rates now on the rise, investors increasingly need to understand the credit risks when investing in China, and the ways to mitigate them.
Rising rate environments can challenge even the most sophisticated fixed income investor. As the Federal Reserve (Fed) rate hiking cycle unfolds and regulatory reform kicks in, investors need to consider the implications for their short-term investments.
In Australia, second-quarter GDP beat expectations – hitting 3.4% y/y – as strong exports and consumption helped offset lower investments. Strong commodities demand helped exports grow at a double-digit level, while the trade balance remained in surplus, supporting a surge in business confidence indicators.
New European money market fund (MMF) regulations are opening up the MMF landscape to include some products that could leave unwary investors short on their security or liquidity requirements. Investment decisions may no longer be as obvious as they once were.
The Federal Reserve’s (the Fed’s) interest on excess reserves (IOER) shot to prominence last month following an unprecedented adjustment by the central bank. What was the rationale for the change and what, if any, are the implications for markets and investors?
The introduction of new asset management product (AMP) rules, bank liquidity rules and money market fund (MMF) redemption rules in the past two months have combined to create the most significant period of Chinese financial regulatory change in two decades.
The low (or negative) yield environment, coupled with many banks backing away from liquidity products following the introduction of Basel III, is forcing corporate treasurers to sharpen their focus on cash management.
In April the People’s Bank of China (PBoC) continued its hawkish strategy of shadowing Federal Reserve (Fed) Rate hikes, raising rates on two of its quasi-monetary policy tools. However, later the same week, the central bank announced a distinctly dovish reserve requirement ratio (RRR) cut. These apparently conflicting interest rate movements have increased market volatility and intensified uncertainty – especially for liquidity and treasury investors.
The wide-ranging scope of the upcoming changes to European money market fund (MMF) regulations should be enough to make most investors sit up and take notice. Quite simply, money market fund investors will need to be ready for the change, or risk losing out.
Under new European Money Market Fund Regulations, the line-up of our liquidity fund range will be changing. However, there will be no changes to the investment profiles of our funds, or to our investment philosophy. Our European Money Market Fund Resource Centre gives a summary of the fund range options we intend to offer in the short-term space for USD, GBP and EUR investors. We continue to evaluate additional structural options and currencies, and will communicate with investors as these evolve.
China’s 2018 economic outlook is upbeat, but cash investors should remain vigilant
China’s recent robust economic growth has confounded cynics, demonstrating that the country could successfully balance the conflicting challenges of ensuring financial stability while decelerating the growth of debt. A combination of a continued global recovery, robust local property markets and improved household consumption all helped the government achieve its 2017 growth target. At the same time, the hawkish monetary policy bias and macro prudential measures from the People’s Bank of China (PBoC) has started to curtail the growth of the shadow banking sector, while also reducing financial risks.
The countdown to implementation of the European Money Market Fund (MMF) Regulation is well underway, with just over a year left on the clock. As that deadline approaches, we’re as committed as ever to helping our clients get to grips with their choices under the new rules.
In recent years, Chinese money market funds (MMFs) have thrived thanks to their ability to generate attractive yields vs. alternative investments (including bank deposits) and the convenience they offer investors. In fact, since June 2012, the number of individual MMFs has risen from 72 to 372, while assets under management have increased 13-fold to CNY 5.3 trillion (USD 815 billion) – a size that makes the industry systemically important.
Tough times are the right time to think about ultra-short duration strategies
In today’s volatile, low-yield world, where corporate treasurers are working harder than ever to generate the returns they need from short-term cash, ultra-short-duration strategies may represent an increasingly attractive proposition.
Time to get your house in order: Gearing up for European Money Market Fund (MMF) Regulation
Two months on from the finalisation of the European MMF Regulation, it’s all too easy to feel that implementation in January 2019 is a long way off. But, as a treasurer, taking a proactive approach to thinking ahead can position you to make the most of the opportunities that the regulation will bring. So what do you need to do? And, crucially, when do you need to do it?
A flexible investment policy: a firm foundation for better cash segmentation
For corporate treasurers, a well-articulated cash investment policy is the vital first step towards bridging the gap between shifting market circumstances and investment goals. But the best investment policies also need the flexibility to adapt to changing market conditions.
Is it time for corporate treasurers in Australia to revisit the US dollar?
For Australian cash investors, a multi-year run of attractive returns from domestic short-maturity investments has ended as the Reserve Bank of Australia (RBA) cut interest rates to a record low, the Australian dollar weakened from three-decade highs and domestic commercial banks’ demand for time deposits declined due to new restrictions imposed by Basel III.
J.P. Morgan PeerView Survey: see how your cash strategy compares
In the early months of 2017, nearly 400 CIOs, treasurers and other senior decision-makers – each representing a unique entity and from all sectors of the global economy – responded to the J.P. Morgan Global Liquidity Investment PeerViewSM survey.
Historically, monitoring the People’s Bank of China’s (PBoC’s) monetary policy was relatively challenging due to opaque monetary policy meetings and limited communication from policymakers. Fortunately, the central bank’s limited set of interest rate tools meant that interpreting PBoC changes was relatively simple. By using a combination of interest rates (deposit rates, lending rates and reserve retirement ratio) and influence (window guidance and loan targets), the PBoC could determine the cost and quantity of money available to domestic, mainly state-owned enterprises.
In the depths of the credit crunch, corporate treasurers fought to preserve capital and maintain the right amount of liquidity for their organisations. Now, with money markets back on a more even keel, but short-term interest rates still close to zero, many treasurers are shifting their focus to analysing cash flow to identify surplus cash – and proactive strategies to make that cash work harder for their organisations.
The Regulation of the European Parliament and of the Council on Money Market Funds is a big name with some big implications for the way that money market funds in Europe are likely to be classified and structured.
Choosing and using money market funds in Asia Pacific
With Basel III set to change how banks view deposits there is an increasing interest amongst corporates in off-balance sheet solutions such as Money Market Funds (MMFs). Money market funds are an attractive option to corporates because of the safety and liquidity they offer, as well as the ability to invest across a broad spectrum of highly-rated assets.
An overview of money market reform in China and its implications for corporate treasurers
In December 2015, the China Securities Regulatory Commission announced the introduction of new guidelines for domestic money market funds. These guidelines, which came into force on February 1, 2016, represent the most significant and comprehensive changes to the rules governing Chinese money market funds since the industry was established in 2004.
The impact of Basel III on corporate cash investment in Asia Pacific
Basel III is set to dramatically change how banks view deposits; a development that is already having an impact on corporate liquidity management. Corporate investors need to understand that going forward non-operational deposits are becoming ever more unattractive to banks and we are likely to see increasing instances of banks turning away some deposits.
How is J.P. Morgan Asset Management’s short-term investment product portfolio evolving to meet the changing needs of investors?
The short-term investment landscape is certainly growing and it is not just the European and US regulatory changes driving this growth; factors such as Basel III and the interest rate environment also act as catalysts to this growth.
What you need to know about US money market fund reform
In October 2016 new Securities and Exchange Commission (SEC) rules governing money market funds (MMFs) take effect. Like earlier SEC reforms, they aim to make the MMF industry stronger and more transparent.
China’s interest rate liberalisation: Why investors will need a keener focus on credit and risk analysis in a challenging new terrain
The Chinese government is committed to further financial sector reform, believing that market-driven interest rates and profit-minded institutions are central pillars of efficient capital allocation and continued economic growth.
How will you manage liquidity through periods of rising interest rates?
Rising rate environments can challenge even the most sophisticated fixed income investor. So, with UK and US interest rates poised to rise from levels that are near their all-time lows, treasurers must be prepared – and take the time to reassess their bond portfolios.