China: Understanding the repo market
Because interest rate markets in China are not yet fully liberalised, the repurchase agreement (repo) is one of just a few suitable, market-driven investible instruments available to investors. As a result, it is a major holding for renminbi money market funds (MMFs).
There are two types of Chinese repo: interbank and stock exchange. According to JP Morgan Asset Management, renminbi MMFs prefer stock exchange repo, which offers quasi-sovereign counterparty risk and faster settlement, albeit with greater volatility.
In a deeply researched white paper, written by Aidan Shevlin, head of Asia-Pacific liquidity management with J.P. Morgan’s Global Liquidity business, we are given an overview of the structure, safeguards and benefits of the repo market. The whitepaper also addresses and allays investor concerns, and explains why repo plays a vital role in renminbi MMFs.
To learn more, download the JP Morgan Asset Management white paper: China’s Repo Markets.
- To read JP Morgan Asset Management's thoughts on the implications of China interest rate liberalisation strategy, please click.