Fitch Ratings has affirmed Taiwan-based Shin Kong Chi-Shin Money Market Fund's (Shin Kong Chi-Shin MMF) National Fund Credit Quality Rating at 'AA+f(twn)' and National Fund Market Risk Sensitivity Rating at 'S1(twn)'.

KEY RATING DRIVERS

The affirmation of the National Fund Credit Quality Rating reflects the sustained high credit quality and short maturity profile of the fund's assets. Fitch bases the rating on the fund's actual and prospective credit quality. Its weighted-average rating factor (WARF) suggested a rating of 'AAAf(twn)' at end-September 2022. However, we recognise that the fund manager may increase exposure to lower-quality securities or extend the maturity profile (within applicable regulatory limits), which could individually or in combination lower aggregate credit quality. Therefore, Fitch has affirmed the rating at 'AA+f(twn)'.

The affirmation of the National Fund Market Risk Sensitivity Rating is driven by the fund's low exposure to interest rate and spread risk, as reflected in the short maturity profile of the fund's assets.

ASSET CREDIT QUALITY

The portfolio has high average credit quality, as measured by its WARF of 0.17 at end-September 2022, higher than the 0.14 peer average. The portfolio has about 97% of assets rated in the 'A(twn)' to 'AAA(twn)' category and 3% in the 'BBB(twn)' category.

The fund has high industry concentration in the Taiwanese banking and finance sectors, whose credit outlook is broadly stable. Its top-five issuers represented roughly 40% of the fund's assets under management (AUM), higher than the peer average of 35%.

PORTFOLIO SENSITIVITY TO MARKET RISK

The market risk factor of 0.21 at end-September 2022 was comparable with the peer average of 0.2, implying a National Fund Market Risk Sensitivity Rating of 'S1(twn)'. The weighted-average maturity was 58 days, shorter than the peer average of 64 days.

FUND PROFILE

The fund invests in time deposits, commercial paper and repos. It is a medium-sized fund that ranks 14th among 36 MMFs in Taiwan. It had total AUM of TWD22 billion at end-September 2022, equivalent to 2.9% of the domestic listed money fund market.

INVESTMENT MANAGER

Fitch considers the investment manager suitably qualified, competent, and capable of managing the fund. The fund is managed by Shin Kong Securities Investment Trust Co., Ltd (SKIT), a wholly-owned subsidiary of Shin Kong Financial Holding Co. Ltd. SKIT ranks 22nd among 39 asset managers in Taiwan and has TWD54 billion of mutual fund AUM, accounting for 1.2% of Taiwan's mutual funds market as of October 2022.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

An upgrade of the National Fund Credit Quality Rating is possible if the credit quality of the underlying assets improves, the weighted-average maturity becomes shorter, and the investment strategy supports improvement in the long term.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The ratings may be sensitive to significant changes in the fund's credit quality or market-risk profile. A large, adverse deviation from Fitch's guidelines for any key rating driver could lead to a rating downgrade. Specifically, the increase of 'BBB(twn)' rated securities and an extension of asset maturity could negatively affect the WARF. The fund's rating is also sensitive to deterioration in the credit quality of Taiwan's banking sector due to the large exposure to that sector. In all of Fitch's four stress tests, the WARF indicated a credit-quality rating of 'AAAf(twn)'.

Fitch expects the National Fund Market Risk Sensitivity Rating to remain stable due to the fund's short maturity profile. However, we would expect to downgrade the rating should interest rates or market volatility in Taiwan structurally change, or if the fund's maturity profile is substantially extended.

SKIT provides Fitch with monthly information, including details of the portfolio's holdings, credit quality and transactions, to maintain bond fund ratings. Fitch monitors the credit composition of the portfolio, the credit counterparties used by the manager, and the overall market-risk profile of the investments.

RATING CRITERIA

Fitch rates money market funds in Taiwan under its global Bond Fund Rating Criteria. This reflects the differences we perceive between Taiwanese money market funds and other Fitch-rated money market funds under our Money Market Fund Rating Criteria. We regard Taiwanese money market funds as less liquid, longer dated and with lower credit quality than the money market funds in other markets. Comparisons between different national fund rating scales or an individual national and international scale are inappropriate.

RATING ACTIONS

Entity / Debt

Rating

Prior

Shin Kong Chi-Shin Money Market Fund

Natl Fund Cr Qual

AA+f(twn)

Affirmed

AA+f(twn)

Natl Sensitivity

S1(twn)

Affirmed

S1(twn)

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Additional information is available on www.fitchratings.com

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