Caixin
Sep 18, 2020 07:48 PM
FINANCE

Largest Chinese Government Bond ETF to List in Singapore

Overseas investors have shown growing enthusiasm recently for Chinese bonds partly due to a stronger yuan and a wider gap between the yields of Chinese and U.S. bonds in general.
Overseas investors have shown growing enthusiasm recently for Chinese bonds partly due to a stronger yuan and a wider gap between the yields of Chinese and U.S. bonds in general.

The largest exchange-traded fund (ETF) to invest purely in Chinese government bonds will list in Singapore next Monday amid growing interest in China’s $15.4 trillion onshore bond market.

CSOP Asset Management Ltd. has partnered with ICBC Asset Management (Global) Co. Ltd. to launch the ICBC CSOP FTSE Chinese Government Bond Index ETF in Singapore, CSOP said in a Thursday statement.

The new yuan-denominated ETF is designed to track and replicate as closely as possible the performance of the FTSE Chinese Government Bond Index, which was created by global index provider FTSE Russell and gauges the performance of Chinese government bonds, CSOP said. The ETF has already attracted a number of institutional investors and will launch with an initial $675.6 million investment, making it the world’s largest pure Chinese government bond ETF, it said.

The upcoming launch of the new ETF comes as China has stepped up efforts to further open its bond market.

 Read more 
Update: China Moves to Ease Foreign Access to $15.4 Trillion Bond Market

“We believe this China-themed fixed income ETF with relatively low cost, easy access and diversified bond holdings will suit the local investors’ demand of seeking for a relatively stable yield,” CSOP CEO Ding Chen said in the statement.

Hong Kong already hosts a similar ETF to the CSOP fund. In June 2018, Chinese fund manager China Asset Management (Hong Kong) Ltd. launched its ChinaAMC Bloomberg Barclays China Treasury + Policy Bank Bond Index ETF, which tracks the performance of Chinese government and policy bank bonds.

Currently, overseas investors can invest in China’s two bond markets — interbank and exchange markets — through three main channels: the Qualified Foreign Institutional Investor program and its sibling, the RMB Qualified Foreign Institutional Investor program — widely known as QFII and RQFII; the Bond Connect program linking Chinese mainland and Hong Kong markets; and directly investing in China’s interbank bond market. These channels are regulated by different authorities and have different requirements for applicants.

Chinese regulators in recent years have stepped up efforts to restructure the domestic bond market. In July, they moved to unify the country’s fragmented interbank and exchange bond markets to make the market more attractive to overseas investors. Earlier this month, authorities unveiled new draft rules to unify rules governing various investment channels, in a bid to make it easier for the investors to access the country’s bond market.

Overseas investors have shown growing enthusiasm recently for Chinese bonds partly due to a stronger yuan and a wider gap between the yields of Chinese and U.S. bonds in general, analysts said. As of Thursday, the spread between the yields on 10-year Chinese government bonds and their U.S. counterparts widened by about one-third from early May to 2.5 percentage points.

In August, the net inflow of overseas funds into onshore bonds, for which bond clearing house China Central Depository and Clearing Co. Ltd. (CCDC) provided custodial services, stood at 117.8 billion yuan ($17.4 billion) (link in Chinese), marking the 21st consecutive month of net purchases, according to CCDC data.

Han Wei and Tang Ziyi contributed to this report.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Gavin Cross (gavincross@caixin.com)

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