Morgan Stanley on Chinese Holdings
Morgan Stanley Investment Management posted commentary recently entitled, "Slowing Chinese Economy Increases Potential for Headline Risk in Some Money Market Funds." It says, "While some money market fund (MMF) managers continue to hold short-term debt of large Chinese institutions, Morgan Stanley Investment Management continues its steadfast approach of not utilizing Chinese credits in our MMF portfolios. In three prior articles in this series, we discussed the reasons why investing in Chinese debt is not consistent with conservative MMF management. We believe that the added compensation for holding these securities does not outweigh the increasing potential for negative headline risk. Over the past two years, some MMF managers have been enticed by the high yields offered for securities of Chinese institutions -- yields that are rarely found elsewhere in the investable money market universe. Particularly of note, the Chinese debt holdings in Euro MMFs have been increasing in the midst of an extremely challenging interest rate environment with money market fund yields approaching zero." The piece concludes, "Given the mounting economic strains, the lack of transparency and the rising debt burden, we can be even more confident in our decision not to invest our clients' money in Chinese debt. We continuously monitor the various developments and significant events affecting the financial markets and we modify our positions as conditions warrant." Note: According to Crane Data's latest Money Fund Portfolio Holdings (as of 7/31/15), Chinese related holdings accounted for just $8 billion of U.S. domestic money market funds' $2.55 trillion. The largest issuers include: China Construction Bank Co (32.7% of all China-related holdings, $2.6 billion), Industrial & Commercial Bank of China Ltd (17.1%, $1.3B), Agricultural Bank of China Limited (11.9%, $0.9B), and CNPC (11.4%, $0.9B).
