JP Morgan: Apac structured deposits demand strong, focus on ESG increases

As the market outlook continues to evolve, demand for money market funds is still strong, adoption of treasury management systems continues to rise, while investors in Asia Pacific are seeking structured deposits/​wealth management products and more investors are incorporating ESG criteria to screen investments, according to JP Morgan Asset Management’s 2019 Global Liquidity PeerView Survey.

‘The changing global economic environment presents investors with many new challenges, from slowing growth, rising trade tensions, and falling interest rates,’ said Paula Stibbe (pictured), global head of liquidity sales, JP Morgan Asset Management. ‘This year's PeerView results suggest that in this environment, demand for money market funds remains strong, and investors with short-term fixed income portfolios are increasingly looking at areas such as ESG screening and treasury management systems when evaluating their cash investment strategy."

The survey found that around 41% of respondents had a cash balance of less than US$500m, while 19% had a cash balance of more than US$5 billion. ‘Stable NAV money market funds and bank obligations are the most permissible investments, followed by U​S Treasuries, floating NAV money market funds and ​among Asia Pacific participants only structured deposits/​wealth management products’, according to the report.

The report also shows that the percentage of cash allocated to stable/​constant/​low volatility NAV money market funds (MMFs) is highest in Europe (​57%) and lowest in Asia Pacific (​30%). However, many clients in Asia Pacific (​30%) indicated in 2019 that they will be adding stable/​constant/​low volatility/ floating MMFs to their portfolios.

‘Investment in structured deposits is also expected to increase in Asia Pacific,’ it said.

According to the research, 45% of total cash allocation will go to stable/​constant/​low volatility NAV money market funds; seven percent to floating NAV money market funds; two percent to wealth management products (​Asia Pacific participants only); six percent to U​. Treasuries; two percent to U​S government agencies; 22% to bank obligations; three percent to commercial paper; four percent to corporate debt securities; five percent to structured deposits and four percent to all other assets.

The survey also found that treasury management systems (​TMS) are used by 61% of respondents, with 19% using in-​house resources. Of the 209 using a TMS solution, 68% found the benefit of integrating MMF investments into it medium to high.

Key themes

The JP Morgan survey has also identified four key themes including strong demand for money market funds (MMFs) which will be allocated in 92% of investment policies, followed by bank obligations (62% of policies) and US Treasuries (60%). Most survey respondents (75%) plan to maintain their stable NAV MMFs, based on the market outlook for the coming year.

Environmental, social and governance (ESG) investments and the adoption of treasury management systems are on the rise. According to the report, investors are increasingly turning to responsible investing, using ESG criteria to screen investments. Nineteen percent of respondents globally are doing so now, and an additional 25% are likely to start within the next two years.

Investors are also eyeing rising political risk as the main challenge of investments, with 67% of respondents expressing concern about the US-China trade war and Brexit.

The survey also highlighted that the search for yield and return in Europe remains. Term deposits continue to be the most popular investment solution to avoid negative interest rates in EUR- and GBP-denominated investments (62%), followed by ultra-short duration bond funds (23%).

In Asia Pacific, the regulatory overhaul is weighing heavily. After political risk, 55% of Apac respondents cite regulatory change their top investment challenge. Twenty two percent say rising credit and default risk in China as a concern—far more than peers in other regions. Apac investors review their investment policies more frequently (66% at least annually) than respondents elsewhere.

Click in the link to read the full JP Morgan Global Liquidity Investment PeerView^SM 2019 findings.

The 2019 Global Liquidity PeerView Survey features responses from 346 CIOs, treasurers and other senior cash investors around the world, representing an approximate combined cash balance of US$1 trillion.