Staying Positive in a Negative World: How Does Your Cash Strategy Compare?
With responses gathered from 346 senior cash investors around the world, representing a combined cash balance of approximately USD 1 trillion, the latest J.P. Morgan Global Liquidity Investment PeerView survey provides a unique opportunity for corporate treasurers to compare their cash investment practices with those of their global counterparts, while offering worldwide and regional insight into the latest short-term investment trends.
Multiple investment challenges
One of the most prominent themes arising from this year’s PeerViewSM survey is the growing spectrum of challenges facing cash investors. Top of the list of investment challenges is rising political risk, with 67% of survey respondents expressing concern about the US-China trade war and Brexit in particular.
Yield curve inversion was ranked the second biggest investment challenge globally, thanks mainly to concerns among US investors. Investors in Europe, the Middle East and Africa (EMEA), on the other hand, are more concerned by negative yields/returns than yield curve inversion, while those in Asia Pacific (APAC) see regulatory changes as the most pressing challenge (see Figure 1). APAC investors are also much more worried about rising credit risk in China than their EMEA and US peers.
Figure 1: Investment challenges
Source: J.P. Morgan Asset Management, as at 30 September 2019.
Investment policy review
Against this difficult market backdrop, respondents are conducting regular investment policy reviews. According to the survey results, almost half of respondents globally review their investment policy at least once a year, with 62% of APAC respondents reviewing more often. Investors with cash balances of over USD 5 billion are also more likely to review their policies more than once a year.
The types of permissible investment are also changing as a result of these policy reviews—although some respondents are more flexible than others. Stable/constant/low volatility net asset value money market funds remain the most popular, being named as permissible investments in 92% of investment policies, followed by bank obligations (in 62% of policies) and US Treasuries (in 60%).
Firms with larger cash balances tend to have greater flexibility to invest in riskier securities, with more than one fifth of companies with USD 5 billion-plus balances allowed to use asset-backed securities, and almost a quarter allowing mortgage-backed securities.