Reforms for money market funds in China have made the country's financial sector safer but risks remain, warns a ratings agency.
Money market funds are particularly vulnerable when conditions deteriorate, for instance when bond prices are volatile, said Fitch Ratings.
“Regulation announced in December 2015 has dampened the effect of the bond market volatility on Chinese money market funds to some extent, through tightening rules on weighted average maturity, credit quality of underlying assets and net asset value (NAV) deviation,” said a statement from the agency.
“While these prudential regulations are a step in the right direction, they still trail regulatory standards for money funds in the US and Europe,” it added.
Chinese bonds sold off in December after the Chinese central bank tightened liquidity on top of a US rate rise. The agency said, “the stress experienced by some money-market ETFs [exchange-traded funds] suggests that the NAVs of some money market funds may have also come under pressure”.
©2017 funds global asia