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Fitch: Structural Market Differences Drive Growth of World's Two Largest Money Funds.

Shanghai: The world's two largest money market funds have both grown rapidly, but for very different reasons, Fitch Ratings says. These funds' profiles illustrate structural risk differences between their respective markets.

China's Yu'E Bao (which translates into "leftover treasure") is the world's largest money market fund (MMF), with CNY1.56 trillion (USD233 billion) in assets under management (AUM) as of September 2017. The second largest, JP Morgan U.S. Government Money Market Fund (JPM USG MMF; AAAmmf), a US fund, had AUM of USD140 billion.

Yu'E Bao has been growing at a CAGR of 125% since its launch in 2013, thanks to technological development and its links with Alibaba Group Holding Limited's (A+/Stable) online payment platform, Alipay, enabling significant retail investment. JPM USG MMF's size had been stable until 2H16, when US MMF reform resulted in significant asset flows from prime funds into MMFs that are limited mostly to government securities.

Yu'E Bao's credit quality is materially weaker than that of JPM USG MMF. Assets in Yu'E Bao carry a minimum rating of 'AA+' on a national scale assigned by local rating agencies, while JPM USG MMF is invested in 'AAA' rated US government and agency securities and repos backed by such securities. JPM USG MMF is rated 'AAAmmf' by Fitch whereas Yu'e Bao is unrated.

Yu'E Bao's 325 million investors constitute a large and diversified investor base, which is positive for liquidity management and makes large-scale redemptions less likely. However, asset quality and liquidity are significantly weaker than for JPM USG MMF, and large redemptions could still arise in extreme circumstances as retail investors can have a herd mentality. JPM USG MMF is highly liquid, in accordance with U.S. regulations and Fitch's 'AAAmmf' criteria, although its predominately institutional investor base is inherently more concentrated.

The Chinese MMF industry is concentrated with Yu'E Bao alone accounting for 25% of the market as of September 2017, while the US market is more diversified - with the largest, JPM USG MMF, representing only 5% of the local market.

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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Feb 28, 2018
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