Allianz GI reopens popular Dim Sum bond fund

Allianz Global Investors has reopened its RCM Renminbi Fixed Income fund, which it had capped in December after assets hit €450m within weeks of it opening, as the offshore pool of Chinese bonds nears an all-time high and ever more of China’s trading partners settle bills in the yuan.

The fund, managed by Helen Lam, was one of many launched around that time, targeting quality renminbi-denominated bonds, known colloquially as Dim Sum bonds.

There were hopes among managers, and investors in the sector, that China’s currency would appreciate by up to 6% annually against major trading currencies, and bond coupons would provide extra income on top of this for investors.

That expectation was tempered slightly over the course of the year, and Lam (pictured) said today “the currency component [of her fund] may not necessarily add a significant contribution to the total return of the CNH products in the near term, but we expect the interest rate component to be the major driver of the return as the CNH bond market develops into a more important global asset class”.

Lam’s fund still aims for a total return, including currency gains, of about 5% – well above yields on much core European debt.

She said: “We expect that high grade quality CNH bonds should be able to offer a stable return of 3 – 4% through the attractive yield component.

“We also expect to enhance the portfolio’s total return through duration positioning to capture the policy-driven interest rate movements in mainland China. The product is particularly suitable for those investors who are looking for products with attractive yield and low volatility.

“Though the recent fundamental and cyclical factors in China seem to suggest a softening RMB appreciation outlook, we believe that the pace of RMB appreciation will remain stable going forward. This should be supported by China’s strong commitment to the RMB internationalization process through the promotion of cross-border trade and investment flows. Recent data suggests that approximate one-tenth of China’s total trade is settled in RMB, up from only 2% two years ago.”

She has pointed to various nations, and companies, settling trade accounts with Beijing in renminbi rather than US dollars or other major currencies.

“We also see transaction turnover in the CNH market continuing to pick up pace, with the size of Hong Kong’s offshore RMB pool approaching an all-time high, thus easing market concerns on the liquidity of offshore RMB.

“Therefore AllianzGI believe that cross-border RMB trade settlement should continue to the key driver of CNH liquidity growth in Hong Kong and will lead to a more stable CNH currency movement that is increasingly driven by real business demands rather than pure currency speculation.”

Many investors looking for these attributes have sought China out for other asset classes, too.

China money market funds have more assets (CNY358.9bn) now than at any time over the past three years, according to Fitch Ratings.

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