Conservative outlook prevails for Taiwan's Money Market Funds

Taiwanese MMFs are constrained by their concentration on the domestic financial sector, comprising over 90% of assets.

In a release by Fitch Ratings-Taipei/Singapore-03 April 2012, Fitch Ratings says in a new report that the ratings of Taiwanese money market funds (MMFs) should remain stable in the foreseeable future, after regulatory changes have helped reduce the risk profile of their investment portfolios. Fitch expects rated Taiwanese MMFs to maintain strong underlying credit quality.

"Taiwanese MMFs' risk profile has improved noticeably in recent years after the implementation of stricter regulations to limit their eligible investment assets and maturity exposures," says Jonathan Lee, Senior Director in Fitch's Financial Institutions Group. "The growth prospect of Taiwanese MMFs will remain constrained as their search for short-dated, high quality assets is hampered by a limited supply of qualified securities domestically."

The ratings of Taiwanese MMFs reflect their strong asset quality and short maturity profile, but are constrained by concentration on the domestic financial sector (over 90% of MMFs' assets). Such concentration could expose the funds to the risk of a rapid weakening of asset quality in a bank systemic risk event.

Fitch currently rates Taiwanese MMFs on its Bond Fund Rating Scale, rather than its MMF Rating Scale. This reflects potential exposure to lowly-rated assets ('BBB' category) and the limitation of the funds' liquidity profile (in terms of maturity, the liquidity buffer, and concentration in the domestic private financial sector).

The report entitled 'Taiwanese Money Market Funds: More Conservative Profile but Little Room for Growth' is available at www.fitchratings.com.