India, Brazil offer investors highest nominal yields, says Fitch

Money funds in India and Brazil offer investors the highest nominal yields, according to a report.

The assets of money market funds (MMFs) in Brazil and India have increased significantly compared with the decline seen in Canada and Taiwan and stable asset bases of funds in South Africa and Mexico, Fitch Ratings has said.

"Money funds in Brazil and India offer investors the highest nominal yields when compared with other jurisdictions. Nominal yields in Taiwan and Canada are near zero, more in line with the typical yield of US money funds. In Europe, even nominal yields on money funds are currently negative," Fitch said in a report.

Assets under management (AUM) of money funds in China have surged eight fold over the past five years, pushing it past Korea to become the third-largest MMF market.

AUM of money funds in Brazil has almost tripled in the last five years and that of India has more than doubled. In contrast, AUM in US money funds have shrunk by around 18 per cent since 2009 while Europe money funds have contracted about 3 per cent over the same time period.

The report further said money funds are less utilised in terms of broad money supply in these "second tier" jurisdictions unlike in the US where Fitch estimates that money funds account for over 20 per cent of broad money supply (M2).

Money funds represent less than 5 per cent of broad money supply in India, Canada, Korea and Taiwan.

The lower penetration rate of money funds could suggest potential for growth, it added.

AUM in money funds globally have shrunk 10 per cent over the last five years to approximately $4.5 trillion as of end-2014 (excluding Australia).

Korea, Mexico, Brazil, India, Taiwan, Canada and South Africa are 'second tier' money fund markets –- large in their own right, but too small compared with the US, Europe and, increasingly China, which together account for 93 per cent of the global market.