Risks and Challenges for Corporate Cash Investors in China 企业投资者在中国所面临的风险及挑战

Transcription

1 Risks and Challenges for Corporate Cash Investors in China 企业投资者在中国所面临的风险及挑战 Kheng Leong Cheah Head of Global Liquidity Sales, Asia Pacific J.P. Morgan Asset Management

2 Question #1 问题 #1 Question on investment horizon, how long can you invest your cash out? (fixed tenor or average portfolio WAM) A. 7 days or below B. 30 days or below C. 90 days or below D. 1 year or below E. Above 1 year / no investment policy requirement 关于投资期限的问题, 请选择您能接受的现金投资期限?( 固定期限或理财产品组合平均期限 ) A. 7 天 B. 30 天 C. 90 天 D. 1 年 E. > 1 年 / 没有投资政策要求 1

3 Question #2 问题 #2 Specific for China: with more short term interest rates available, which cash benchmark do you find most useful? A. PBoC overnight cash rate or 7-day call deposit rate B. Short maturity Shibor rates C. Best deposit rates from Big-5 banks D. Wealth management product yields E. Average money market fund yields 具体到中国投资 : 在众多短期利率中, 您认为哪个基准利率更有参考性? A. 中国央行隔夜现金利率或七天通知存款利率 B. 短期上海银行间同业拆放利率 C. 五大行最高存款利率 D. 理财产品收益率 E. 货币市场基金平均收益率 2

4 Investment options for institutional clients in China 中国机构投资者在中国的投资选择 3

5 Cash forecasting and cash investment tenor segmentation is usually the prerequisite for cash investments 现金预测以及投资期限分类通常是现金投资的前提条件 Cash segmented by liquidity needs and risk profile Daily operating cash Usually requires same day liquidity (eg. Invest in MMF, 7 day deposit, current account) (Horizon-Daily Liquidity) Cash Reserve - Usually invest for less than 3 months (eg. Invest in MMF, less than 3 months bank products) (Horizon-Annual) Cash for special purpose Usually invest for less than 1 year (Horizon-Relatively longer) Strategic cash Usually stable cash flows, invest for more than 1 year (Horizon-longer) 1 st Quarter Source: JPMAM. For illustration purpose only. 2 nd Quarter 3 rd Quarter 4 th Quarter 4

6 Current investment options in China are limited for institutional investors - Common cash management tools in China 当前中国的企业投资选择有限 - 中国境内常见的现金管理工具 Bank deposits Structured deposits Wealth management products Money Market Funds Bond Funds / Separate Account Investment Horizon Current/ Contract/ 7D/ 3M/ 6M/ 12M Variety of tenors Variety of tenors Daily liquidity Medium to long duration, usually 3M to 36M Yield management PBoC Guidance Depending on banks appetite Enhanced return over regulated deposits by variety of structures Depending on banks appetite Enhanced return over regulated deposits by variety of underlying asset classes Depends on underlying asset class Market yield, benchmark to 7 day call deposit Actively and strategically managed for principal safety, liquidity, and yield Provide excess returns relative to a benchmark or highest risk adjusted returns Liquidity Daily access only available for current account / contract savings Otherwise, by tenors By tenors By tenors T+0/ T+1/ T+2 settlement Liquidity provided by the Fund Negotiated with the fund manager, usually pre-determined on the fund contract Vehicle structure Bank accounts Bank derivative investment products Investment products Public mutual funds Public mutual funds / IMA Counterparty & credit risk Single counterparty s balance sheet risk Single counterparty s balance sheet risk Some derivatives expos to other counterparty risk Single counterparty s balance sheet risk* Risk diversified among multiple counterparties AAA-rated MMFs are restricted by AAA investment guidelines Risk diversified among multiple counterparties Typically unrated, but can have bond fund rating from NRSRO Operational & Cost Requires daily management and reinvestment by investors Cost of treasury resources Requires daily management and reinvestment by the investor Cost of treasury resources Requires daily management and reinvestment by the investor Cost of treasury resources For illustrative purposes only. * According to CBRC 2014 [No. 35], bank are not permitted to provide principal guarantee for wealth management products. Actively managed by fund managers No subscription or redemption fees Published management fee (inclusive of portfolio management, custody, administration, accounting and transfer agency fees) Actively managed by fund managers Usually subscription or redemption fees are charged for bond fund Published management fee (inclusive of portfolio management, custody, administration, accounting and transfer agency fees) SMA fees can be negotiated with fund manager, usually fees commensurate with investment size and tenor 5

7 Market yield increased and is expected to remains high 市场利率增加并维持高位 1Y CDB bond and 3M NCD YTM (%) 7 Day Repo & 3M Shibor Rates (%) 5.0 1Y CDB Bond 3M NCD 5.0 R007 SHIBOR3M After Fed raised interest rate in Dec and Mar, PBoC also increased market interest rate through open market operation, which triggered market yield up The tight liquidity and bond entrustment holding issues accelerated bond market adjustment, which also triggered increase of market yield since Dec PBoC began to conduct decrease short, increase long policy on Aug 24, effectively increasing funding cost in the open market Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 Source: Wind, CIFM, Data as of Mar

8 How will rising interest rates affect the return of different investments? 利率上升会对不同投资的回报率带来什么影响? Investment Type Advantages Disadvantages Overnight deposits Term deposits Money market funds A series of overnight deposits will generally track higher rates closely Deposits are not marked-to-market and so there are no unrealised losses The yield of MMFs will rise in line with prevailing interest rates No unrealised losses The overall return may be less than better diversified investment options The gain at maturity will generally be less than a series of shorter deposits The increase in yield will lag rising rates depending on fund Weighted Average Maturity (WAM) Short term bond funds The higher yield of ST funds may help offset unrealised losses The higher duration will mean the unrealised losses will be greater than MMFs Separate accounts The higher yield may help offset unrealised losses Source: J.P. Morgan Asset Management; data as of 31st Mar For illustrative purposes only. Strategy may be difficult to shorten if rates rise quickly 7

9 China Institutional Investors: Five Key Challenges for 2017 中国机构投资者在 2017 年面临的挑战 8

10 Question #3 问题 #3 Despite concerns of a hard landing and rapid currency devaluation in 2016, the Chinese economy actually performed quite well. Into 2017, what do you believe are the key risks for investors in China? A. Economic tailwinds fade and the economy slows substantially B. Further Renminbi depreciation and FX outflows C. Increased regulatory and reform risks D. Credits risks and defaults continue to increase E. At present, I don t believe there are any major risks for investors in China 尽管 2016 年面临经济硬着陆和人民币汇率急速贬值的挑战, 中国经济实际表现依然相当出色 展望 2017 年, 您认为对于中国的投资者而言, 最主要的风险因素包括哪些? A. 经济增长的利好因素减少, 经济增长大幅放缓 B. 人民币汇率进一步贬值以及外汇流出 C. 监管和改革方面的风险加大 D. 信贷违约风险持续上升 E. 目前我认为对中国投资者而言不存在任何重大风险 9

11 Challenge #1: Balancing growth and economic stability 挑战之一 : 在经济增长与稳定间求平衡 GDP Key Economic Indicators Caixin PMI 10% 9% GDP (QoQ) Bloomberg GDP Estimate GDP (YoY) 25% FAI Retail Sales IP 55 Manufacturing Services 8% 20% 53 7% 6% 15% 51 5% 4% 10% 49 3% 2% 5% 47 1% 0% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 0% Mar-13 Mar-14 Mar-15 Mar-16 Mar Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: Bloomberg and J.P. Morgan; data as of 31st Mar

12 Challenge #2: Managing CNY stability 挑战之二 : 维持人民币汇率稳定 CNY v USD China Forex Reserves CFETS v USD TWI (base Jan 14) 7.2 CNY (LHS) % Change YoY (RHS) 8% 4.1 FOREX (USD trn) (lhs) % Change y/y (rhs) 20% 130 CFETS USD TWI 7.0 6% % % 2% 0% % 5% % -4% -6% % -5% -10% % % % Mar-13 Mar-14 Mar-15 Mar-16 Mar % Jan-13 Jan-14 Jan-15 Jan-16 Jan Mar-14 Mar-15 Mar-16 Mar-17 Source: Bloomberg, Standard Chartered and J.P. Morgan; data as of 31st Mar

13 Challenge #3: Managing monetary policy amid rising inflation 挑战之三 : 在通胀上升的环境中管理货币政策 Inflation (%y/y) Policy Rates (%) Reserve Requirement Ratio (%) 7% 5% CPI PPI 7% 6% 1-yr Deposit 1-yr Lending 21% 20% Large Banks Small Banks Adjusted for PBoC Flows 19% 3% 5% 18% 1% 4% 17% -1% 16% -3% 3% 15% 14% -5% 2% 13% -7% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 1% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 12% Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: Bloomberg, HSBC, People's Bank of China and J.P. Morgan Asset Management; data as of 31st Mar

14 Challenge #4: Balancing liquidity requirements and costs 挑战之四 : 平衡流动性和融资成本 Total SLF, MLF & PSL (CNY bn) Monetary Conditions Index PBoC OMO Tenor Mix 7,000 6,000 Pledged Supplementary Lending (PSL) Medium Term Lending Facility (MLF) Short Term Lending Facility (SLF) % 90% 80% 28-day 5, % 4,000 60% 80 50% 7-day 14-day 3,000 40% 2, % 1, % 10% 0 Mar-14 Mar-15 Mar-16 Mar % Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Source: Bloomberg, Citibank, People's Bank of China and J.P. Morgan Asset Management; data as of 31st Mar

15 Challenge #5: Deleveraging the system 挑战之五 : 金融体系去杠杆 Private Sector Credit to GDP Wealth Management Products WMP & Trust Product Yields 240% 220% 200% 180% Informal lending Letter of credit Brokers & fund subs Corporate bonds Undiscounted BA WMP (loans & credit) Entrusted loans Total outstanding loans Bank WMP Trn (LHS) WMP / Deposits (RHS) 20% 18% 16% 14% 12% 10% 9% 8% 7% 6% Banks' WMP Wgt Avg Return Trust Product Expected Return 160% 15 10% 5% 140% 120% 100% % 6% 4% 2% 4% 3% 2% 1% 80% H16e 0 0% H1-16 0% Source: Bloomberg, Citibank, Bloomberg, UBS, Wind and J.P. Morgan Asset Management; data as of 31 December

16 China Credit Update: Changes in Bank and Corporate Credit outlook 中国信用市场更新 : 银行及企业风险变化 15

17 Question #4 问题 #4 How do you analyze counterparty risk in China? A. Use domestic ratings e.g. only invest in AAA rated banks B. Use international ratings e.g. only invest in A or better rated banks C. Use CDS spreads with trigger at certain levels D. Only invest in the Big-5 banks E. All banks in China are implicitly supported so there is no counterparty risk 您如何分析中国的交易对手方风险? A. 使用国内评级 例如仅投资 AAA 评级的银行 B. 使用国际评级 例如仅投资评级为 A 或更高的银行 C. 使用在特定水平将被触发的信用违约互换价差 D. 仅投资五大行 E. 中国所有银行都拥有隐形支持 因此不存在交易对手方风险 16

18 The funding profile of Chinese banks has changed significantly over past several years as demand for credit and impact of interest rate liberalization alter landscape 受市场需求及利率自由化等变化的影响, 中国银行的融资状况在过去几年有明显变化 Equity and Other Investment* / Total Funding Use Percentage of Wholesale Funding 25% National big banks Medium & small banks 1.4% 35% Medium & small banks National big banks 20% ROA - banking sector (RHS) 1.2% 30% 1.0% 15% 0.8% 25% 10% 0.6% 20% 0.4% 5% 0.2% 15% 0% end-2014 end-2015 end % 10% end-2014 end-2015 end-2016 Source: People's Bank of China and J.P. Morgan Asset Management; data as of 21 April *Other investment includes investment receivables. ROA stands for return on assets. 17

19 International rating agencies downgraded some issuers, while the domestic ratings are stable 国际评级机构调降部分发行人的评级, 国内评级保持不变 Domestic versus International Ratings - Corporates Domestic versus International Ratings - Banking AAA AA+ AA AA- A+ A AAA AA+ AA AA- A+ A Domestic Rating International Rating International Rating 1 year ago A- BBB+ BBB BBB- BB+ Domestic Rating International Rating International Rating 1 year ago A- BBB+ BBB BBB- BB+ BB BB CNPC CNOOC SINOPEC Shenhua Dongfeng State Construction Baosteel Minmetals Beijing Enterprise Vanke Bright Food Soho China BoC ICBC CCB ABC BOCOM Merchants Citic SPDB Minsheng Everbright Industrial Guangfa Source: Bloomberg, Fitch, Wind and J.P. Morgan Asset Management; data as of 21 April

20 The number of defaults has increased as the Government s willingness and capacity to support the system has decreased 违约事件的增加体现政府刚性兑付的意愿及能力有所下降 Non-SOE SOE Zhuhai Zhongfu (Manufacturer) 1,180mm Shenda (Chemical) 300mm Dongbei Steel (Steel) 7,170mm GuoYu (Transportation) 600m Peoples Republic of China Established Cloud Live Tech (Restaurant) 480mm Tianwei Yingli (Solar Power) 2,700mm Yabang (Chemical) 900mm Shanxi Huayu (Coal) 3,850m Sichuan Coal (Coal) 4,750m Hebei Logistics (Transportation) 450m Inner Mongolia Berun (Chemical) 3,800m 1949 Apr Jun 2015 Oct Dec 2016 Feb Apr Jun Aug Nov 2014 Dec 2017 Baoding Tianwei (Manufacturer) 4500mm Sino Steel (Steel) 2,000mm Shanshui (Cement) 7,100mm Hongda (Steel) 400mm Yurun (Food) 1,500mm 19 Nailun (F&B) 800m Evergreen (transportation) 940m Dalian Machine (Manufacturing) 200mm Source: Wind, JPMAM. The lower rows in the boxes are sectors (in brackets) and outstanding bonds at time of defaults. The charts only illustrates defaults on public bonds, not including private placement bonds, bonds guaranteed by 3rd parties, or bonds issued through SME program. China City Construction (Construction) 16,150m Dalian Machine Tool (Manufacturing) 3,800mm Huasheng Jiangquan (Metals) 1,400m

21 To minimizing credit risk investors should 投资者如何降低信用风险 Focus on Standalone Profile Focus on Government Support Capital Capital structure (for banks) Gross (net) debt to earnings volatility (for corporates) Ministry of Finance Peoples Bank of China Earnings Liquidity Market Position Management Review for resiliency and quality over prolonged time periods Matched funding, stable retail funding base (for banks) Cash position, backup credit lines, short-term debt/gross debt (for corporates) Market share, brand name, sector competition landscape, bargaining/pricing power, scale Determine consistency and integrity Strong Government Links Weaker Government Links No Government Links Policy Banks Systemically important Commercial Banks Systemically important state owned corporates Smaller Commercial Banks Smaller, non-systemically important SOEs Private Corporates Source: JPMAM. As at 31st Aug

22 However, not all government support is equal 但并非所有的政府支持都相同 Different Governments Receive Different Supports Determinants of Government Support Central Government Strong High Low Provincial Government Utilities and infrastructures Social Benefits Mining, retail, and other commercialized business Provincial capitals & subprovincial cities Dominating sector leaders or highly-regulated oligopoly sectors Exclusivity Fragmented market share or oligopoly with fierce competition Prefectures & lower ranked governments Weak Controlling ownership, Integration into government budgets. Government Involvement Private Corporates or passive investments from governments Source: JPMAM. As at 31st Aug

23 Off-balance sheet investment and why J.P. Morgan? 负债表外的投资以及为何选择摩根? 22

24 Not all money market funds are the same: Due diligence is important 然而不是所有货币市场基金都相同 : 作好全面的尽职调查非常重要 A organization s investment policy provides a firm foundation for sound investment decision making. It helps the organizations achieve its investment goals, provides internal clarity, and promotes long-term discipline in investment decisionmaking. Investment Policy Fund Ratings Other Criteria Scope and Objectives Preservation of capital Necessary liquidity Maximizing total returns Risk Tolerance Interest rate risk Credit risk Liquidity Risk Permissible investments Concentration limits Reporting and custody Responsibilities and compliance Global Rating Agencies help investors assess the stability and credit worthiness of funds To achieve the highest ratings, a fund must meet certain investment criteria Rating agencies also conduct frequent monitoring and oversight of funds Fund sponsor s strength, commitment and record The strength and track record of investment process The importance of proprietary credit analysis and how credit risk is assessed Levels of liquidity, investor concentration and access Ease of operational and oversight Source: J.P. Morgan Asset Management: For illustrative purposes only. 23

25 Why J.P. Morgan: A proven approach to credit analysis and security selection 摩根大通拥有一系列的信用分析以及债券挑选审批流程 Our rigorous process is driven by quantitative and qualitative research, and differentiated by independent oversight. PROVIDE CREDIT AND RISK MANAGEMENT OVERSIGHT Our team independently evaluates all selections, ensuring quality and objectivity. IDENTIFY potential opportunities Portfolio Managers and Traders ANALYZE securities through robust research Credit Analysts CREATE approved list of issuers Credit Analysts ASSESS relative value and construct portfolio Portfolio Managers Supply / Liquidity Return / Yield Conduct qualitative testing/ fundamental research Run financial models and quantitative screens MONITOR CONTINUOUSLY Our process includes longstanding, monthly Investment and Governance Committee meetings to review and manage exposures. Portfolio managers, credit analysts and the risk management team are separate groups that collaborate to provide objective analysis and deliver a rigorous and repeatable process 24

26 Comparison of multiple guidelines for Chinese money market funds 不同机构对中国货币市场基金有不同的指引标准 Guideline CSRC* CCXR** Fitch CIFM RMB MMF CIFM RMB Cash Liquidity MMF Maximum WAM 120-days 120-days 75-days 75-days 60-days Maximum WAL 240-days 120-days 120-days 120-days 120-days Maximum Maturity Minimum Credit Rating for underlying investments Repo / Reverse repo Fixed: 397-days Floating: Unlimited Max 20% in >1yr FRN Corporate bond: AA+ (domestic) CP: A-1 Fixed: 397-days Floating: Unlimited LT: AA+ (domestic) or ST: A-1 (domestic) Fixed: 397-days Floating: 2-years A- (LT), F2 (ST) Min 50%>=F1 Fixed: 397-days Floating: 2-years AAA domestic Internally approved, A2 Moody s & eligible Fitch Fixed: 397-days Floating: 2-years Only sovereign and policy bank financial bonds. Yes(<=20% ) / Yes Yes (<=20% ) / Yes No / Yes No / Yes No / Yes SSE Reverse Repo Unlimited Unlimited Interbank Reverse Repo Issuer Concentration Maximum 40% 20% per Custodian Bank 5% per other banks 10% per Corporate issuer Unlimited 20% per Custodian Banks 5% per other banks 10% per corporate issuer Unlimited Max 25% per transaction Maximum 20% Max 10% per cpty 35% Govt Bond issuer 15% Policy Banks 15% Big-5 Banks 5% Corp issuer Unlimited Max 25% per transaction Maximum 20% Max 10% per cpty 35% Govt Bond 15% Policy Banks 15% Banks*** 5% Corp issuer Unlimited Max 25% per transaction Maximum 20% Max 10% per cpty 35% Govt Bond 15% Policy Banks 15% Banks*** Issue Concentration 30% Banks 100% Govt Bond 50% Policy Banks 100% Govt Bond 50% Policy Banks 30% Banks Minimum 10% in cash**** 100% Govt Bond 50% Policy Banks 30% Banks Minimum 10% in cash**** Remark: The CIFM MMF investment guideline is subject to credit rating agency s criteria * China Securities Regulatory Commission ** CCXR: China Chengxin Credit Rating Company Limited 25 *** Investment % on time deposit excludes the negotiated deposit which does not bear the interest loss at early termination. There is no limit of total negotiated deposit **** Includes current deposit, repo agreement and bond with remaining maturity less or equal to 1 day

27 Summary 总结 Step 1: Segment your treasury cash set your investment policy Step 2: Understand the market risk in your underlying investments. Set benchmark and review periodically Step 3: Regulatory environment and market changes pose as opportunity as well and challenge in cash investment especially in a challenging market like China. Choosing the right partner with sponsorship strength and track record in the market is critical 26

28 Q&A 问答 27

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