The money market alternative for investors

KUALA LUMPUR: The money market offers “shelter” in the current volatile environment, says Yvonne Phe Kheng Peng, chief investment officer for fixed income of funds management division for AmInvestment Bank Group.

Instead of keeping money as fixed deposits, investors should consider parking their capital in money market-related funds, which offered better returns, she told a press briefing on Malaysian money market funds: Stability vs calamity in financial turmoil.

Such funds are invested in companies, banks and governments’ short-term debt securities, like commercial papers, repurchase agreements, negotiable certificates of deposit, treasury bills and cash, which are low-risk vehicles with decent liquidity.

Phe acknowledged that some investors were concerned that Malaysia’s money market could follow that of the US but that scenario was unlikely because the two markets were on different platforms.

Yvonne Phe

The US money market funds were heavily invested in commercial papers, which had substantial exposure in financials, credit lending and mortgages, she said.

The commercial papers in Malaysia, on the other hand, are in non-financial and quasi debt securities, and are mostly underwritten by banks and given guarantee by Bank Negara up to 2010.

These underlying factors had worked to Malaysia’s advantage and lowered the risks of fallout and liquidity crisis as seen in the US, Phe said, adding that the poor performance of Malaysia’s capital market was “merely sentiment driven.”

She expected the low interest rate environment to prolong to next year as another rate cut of 25 to 50 basis points was expected in the first quarter.

The current trend of the swap rate indicated that investors were pricing in further reductions in interest rates, she said.

“The CPI (consumer price index) is anticipated to drop tremendously in the second half of 2009 due to the higher base this year,” she said.

In an environment of slow economic growth, lower inflationary pressures and low interest rate regime, the bonds market was expected to pick up, Phe said, adding that this offered opportunities for investments.

Chief executive officer and executive director (funds management) Datin Maznah Mahbob said the group planned to launch a new money market fund in the first quarter of next year.

“Money market funds are stable and provide reasonable liquidity. It’s an interplay between yield, liquidity, credit and duration,” she added.

The banking group’s AmDual Opportunities-Capital Protected Fund, which was launched in September 2007, had gained 14% year-on-year, she said, adding that this was the best performing fund in the country in the category of structured products.

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