HSBC serves up offering to growing Dim Sum bond fund menu

HSBC has become the latest group to launch a renminbi fixed income fund, following in the footsteps of groups such as ACM Bernstein and DWS Investments.

HSBC’s offering, the HSBC GIF RMB Fixed Income fund, will sit within the group’s Luxembourg Sicav, and be registered across Europe.

It will be managed by HSBC Global Asset Management’s $24bn Asian fixed income team, based in Hong Kong and headed by Cecilia Chan (pictured). She has managed Asian fixed income assets at HSBC for 17 years.

The fund will focus variously and dynamically on offshore RMB-denominated bonds – colloquially dubbed the ‘Dim Sum’ market – and on deposits. Because the RMB market typically has instruments of shorter duration, the average duration of HSBC’s fund’s holdings is likely to be from one to three years.

Chan said: “The investment case for the renminbi is powerful given the potential currency appreciation. The Chinese authorities have allowed a managed appreciation of the currency to cool the economy and to ease international relations with trading partners who objected to the advantageous terms of trade that a weak renminbi meant for China.”

She said the renminbi, also termed the yuan, could become a major reserve currency. “As such, we believe the emergence of the offshore renminbi fixed income market will provide investors with an exciting new investment opportunity”.

HSBC is not alone in holding such a view.

When DWS recently announced its own such fixed income fund – DWS Invest China Bonds fund – it said it expected currency appreciation to provide twice the annual returns (5%) as would a typical portfolio of high grade renminbi bonds.

Since Beijing cut the official tie of its tender to America’s in 2005, the yuan added 23% in value. Estimates on just how cheap the renminbi is vary from between 12% and 50%.

Presenting ACM Bernstein’s RMB Income Plus portfolio to German allocators at Investment Europe’s recent Frankfurt conference, fixed income chief investment officer Douglas Peebles said the group forecast 5.4% annual appreciation in the yuan.

ACM Bernstien’s fund invests in bonds across Asia, but hedges all currency exposure back to renminbi. He noted about two thirds of Dim Sum bond issues yield under 2%, and a mismatch of supply and demand on this market makes it risky to concentrate too many assets in it.

The proportional exposure of ACM Bernstein’s fund to this market is therefore measured in single digits, he said.

 

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