Currently, only foreign institutional (rather than retail) investors can invest directly in Chinese government bonds, the mechanisms of which are discussed here. However, individual investors can gain exposure to Chinese government bonds by investing in ETFs such as the ICBC CSOP FTSE Chinese Government Bond Index ETF (explained here) or BlackRock's iShares China CNY Bond UCITS ETF (CNYB). We provide a summary of the CNYB fund in this article.
An introduction to China's fixed income markets is also provided here.
***UCITS stands for Undertakings for the Collective Investment in Transferable Securities. This is an EU directive that allows collective investment schemes to operate freely throughout the EU on the basis of a single authorization from one member state. UCITS funds are generally perceived as safe and well-regulated investments that are popular among investors.
***An ETF, or exchange-traded fund, is similar to a mutual fund. ETFs trade throughout the day on exchanges and are typically passively managed investment options.
For further information, please refer to the fund's website.
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About
The CNYB fund was launched in July 2019 as a way to provide retail and institutional investors with exposure to investment-grade bonds issued by the Chinese treasury and Chinese policy banks. Specifically, the fund aims to track the Bloomberg Barclays China Treasury + Policy Bank Index benchmark which is an index composed of fixed-rate Treasury bonds issued by the Ministry of Finance of the People's Republic of China as well as debt issued by Chinese policy banks.
Note: the primary difference between BlackRock's iShares CNYB and the ICBC CSOP FTSE Chinese Government Bond Index ETF is that the former invests in Chinese Treasury bonds issued by the Ministry of Finance of the People's Republic of China, as well as debt issued by Chinese policy banks. The latter exclusively invests in sovereign (i.e. Treasury) bonds.
The share class currency is denominated in US dollars, but underlying assets are denominated in yuan.
Fund Characteristics
As of November 20th, 2020, the fund has net assets worth USD5.04 billion with 607 million shares outstanding. As of the same time, the fund had 77 holdings, 70% of which are debt issued by the Chinese government. Other top issuers include China Development Bank, Agricultural Development Bank of China (not to be confused with the larger and more well-known Agricultural Bank of China), and the Export-Import Bank of China.
The weighted average maturity of the fund is 7.46 years.
Performance
As of the end of October 2020, the past one-year total return for the CNYB fund is 8.64%, compared with 8.84% for the Bloomberg Barclays China Treasury + Policy Bank Index benchmark. The fund's cumulative total return since inception is 6.69%, compared with 6.79% for the benchmark.
Note: benchmark returns do not deduct management fees or other expenses, and you cannot invest directly in an index.
The graph below shows the growth of a hypothetical USD10,000 investment in the CNYB fund since the launch of the fund in July 2019 to October 2020. The Bloomberg Barclays China Treasury + Policy Bank Index benchmark is shown in blue, while the CNYB is plotted in green.
China's Macroeconomy and Policy Developments
The Governor of the People's Bank of China has recently published an article concerning the direction of China's future financial policies, including the intention to pursue traditional monetary policy without the use of quantitative easing or negative interest rates, as well as the aim to maintain a stable value for the yuan. The plan to allow market forces to play a bigger role as part of further reforms in the financial markets was also mentioned, in addition to the government decision to expand the opening up of China's markets to foreign investors. Further information can be found here.
Our view is that this article is good news to those interested in investing in China. Maintaining normal monetary policy with a stable foreign exchange rate for the Renminbi boosts the attractiveness of yuan-denominated assets, while also shielding investors from exchange rate risk to some extent. The capital market reforms are predicted to attract more high-quality Chinese companies that would have otherwise sought out funding abroad, and the opening up of domestic markets will allow foreign investors to access a more diversified range of investment opportunities in China.
Investing in Chinese Government Bonds (Individual and Institutional Investors):
Investing in Chinese Government Bonds (Institutional Investors Only):
More on Investing in China (Equities):
Glossary of All China-Related Terminology:
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Disclaimer: this is not a sponsored post and we don't hold CNBY at the time of writing. Our website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company or security. Any individual who chooses to invest in any securities should do so with caution.
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