Fitch Ratings has reported that liquidity and principal preservation are the key rating considerations in rating Chinese money market funds (CMMFs). The report can be read in conjunction with the recently published report entitled ‘Chinese Money Market Funds: More Choices Expected for Conservative MMF Investors’.
“In assessing CMMFs, Fitch follows global MMF rating criteria with adjustments based on the local context. Key rating considerations include a review of the fund’s investment policy and portfolio holdings regarding credit, market, and liquidity risks as well as the capabilities of its asset manager and sponsor. All Fitch-rated MMFs are subject to ongoing surveillance,” said Roger Schneider, senior director in Fitch’s fund and asset manager ratings group.
“Given the relative nascence of fixed income management in China, the agency places strong emphasis on the fund manager’s capacity to manage against objectives of capital protection and liquidity,” said Hiddy He, associate director of Fitch’s financial institutions team in Beijing.
Alongside asset maturity and credit quality, Fitch’s criteria particularly focus on liquidity and concentration risks. At present, the Chinese market has a limited universe of higher rated issuers that are eligible as investments for highly rated CMMFs. Therefore, some level of concentration in state and quasi-state issuers is a feature of CMMFs. Nonetheless, diversification is an important risk mitigant for MMFs and the report details Fitch’s various diversification criteria at issuer and issue levels.
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