Increasingly mature RMB bonds offer long-term potential

As mentioned in our last issue, the total issuance of offshore RMB bonds has continued to rise over the past few years and is expected to reach RMB360 billion this year. Given its credentials and growth potential, an investment product like this will instantly grab the attention of global investors as something to watch out for in the investment market.

Since the drive towards RMB internationalisation initiated by the Chinese government, the RMB bond market has quickly become a popular financing channel for major global corporations and financial institutions. In 2010, the Central Government allowed overseas multinationals to issue offshore RMB bonds, leading to the first such issuance by fast food giant McDonald’s and driving further the rapid growth of the offshore RMB bond market.

 

Policy conducive to long-term development

But what makes RMB bonds so attractive? For one thing, the Central Government’s strong policy support to expand the pilot programme on cross-border RMB trade settlement has made the RMB one of the world’s major currencies for cross-border trade settlement. For another, with a more streamlined Qualified Domestic Institutional Investors system, the offshore RMB market has enjoyed growing liquidity and contributed to healthy market development by indirectly encouraging more issuers and investors to participate in the market. 

 

Expectations of currency appreciation and dual sources of return

Currently, offshore RMB bonds are relatively more resilient and less affected by interest rate fluctuations, with an average yield of 4.41 per cent* and a relatively short duration. This product, being issued mainly by global companies, also contributes to risk diversification. In addition, most offshore RMB bonds are of investment grades, reflecting good credit quality. 

Another positive factor for RMB bond investment is international expectations of continued RMB appreciation. The RMB is generally perceived as having upward potential in the medium to long term. Investors who are bullish on the RMB can purchase offshore RMB bonds to enjoy returns from the fixed income product while benefiting from asset growth fuelled by the upside potential of the currency. 

 

Stronger regulatory control to support stable economic growth

The Central Government’s recent stepped-up efforts to monitor and regulate interbank activities underscore a strong determination to rein in fast-growing liquidity for the long-term benefit of stable economic growth. In addition, with this year’s economic growth expected to reach 7.5 per cent boosted by a more domestic demand-oriented policy, the market sees a plus factor in the form of a stabilising economic environment for the RMB bond market. Investors wishing to explore investment opportunities in this area are advised to consult an investment professional with a thorough understanding of and extensive experience in the mainland market. 

 

*Source: HSBC Global Asset Management information at 31 July 2013