Fitch: Low Yields Erode Taiwan Money Market Funds' Competitiveness
The persistent low interest rates in Taiwan have driven down the yields of Taiwanese MMFs. This, the constraints on their investment scope, and the limited supply of assets they can invest in have weakened the competitiveness of Taiwanese MMFs. The ratio of the MMFs' total assets under management (AUM) to broad monetary aggregates has thus remained low compared to the historical average. Fitch expects a reversal in the decline in interest rates or a gradual tightening of monetary conditions to help the MMFs improve their yields and increase their AUM.
The low rate environment has prompted portfolio managers to increase the proportion of assets rated within the 'BBB(twn)' category in their MMFs. While the increase raises the funds' risk exposures, it does not materially alter their respective credit profiles. However the funds' ratings are sensitive to any material increase in exposure to these lower rated assets, notably above 10% of their assets. Taiwanese MMFs are highly rated at 'AA(twn)' to 'AA+(twn)', driven by the high credit quality of the underlying assets and the short portfolio durations.
Fitch does not expect any changes to the ratings on Taiwanese MMFs in the near to medium term and affirmed the ratings of all seven rated funds in November 2014.
The report "Taiwanese Money Market Funds" is available at www.fitchratings.com or by clicking on the link in this media release.
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