Barings plans Chinese bond fund as local market opens

Baring Asset Management plans to launch a Chinese bond fund, subject to regulatory approval.

It will be run by Sean Chang, head of Asian debt, who joined the team in May from competitor HSBC Asset Management.

The fund will seek to profit from the increase in issuance and demand for renminbi-denominated debt as Chinese authorities pledge to open the country’s capital markets to foreign investors.

Until recently, direct access to China’s equity and bond markets was limited to institutions with a Qualified Foreign Institutional Investor (QFII) quota. Over the past 18 months, however, the local authorities have being loosening their grip.

The government’s goal is to make the renminbi a global player in the currency markets. A significant move to this effect came on June 7, when China cut its interest rate by 25 basis points for the first time since December 2008.

Chong How Ong, portfolio manager of Reech AiM Group’s White Tiger Asia fund, said this “signals China is moving towards a flexible interest rate regime” and is also likely to be a “precursor to the renminbi internationalisation.”

Barings’ Sean Chang says: “China’s offshore bond market remains in its early stages, but it is growing at a rapid pace and represents a new and exciting way for investors to participate in China’s long-term economic expansion.” He adds China’s bonds offer potential for currency appreciation and income generation.

Barings has invested in Greater China since 1982 and manages nearly $5bn of assets in the region. It has a strong focus on Asia and emerging markets. Recently, it launched an Asian debt fund and plans to launch an EM corporate bond fund, subject to regulatory approval.

Other large managers are reporting an increase in demand for exposure to China. Last month, Germany’s Allianz Global Investors reopened its RCM Renminbi Fixed Income fund, which it had capped in December, in response to requests from investors.

Global investment firms also continue to see opportunities in Chinese stocks, as the country displays robust growth and ever increasing consumption.

Brown Advisory, an investment firm headquartered in Baltimore, US, sees particularly compelling opportunities in the beauty and skincare sector of the economy, as female participation in the country’s workforce grows.

Ken Stuzin, fund manager of the firm’s US Equity Growth Fund, says “skin care and cosmetics are among the fastest growing consumer categories in emerging markets, particularly China and Brazil.”

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