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CNH bond base to reach RMB400 billion in 2012, StanChart says
Investments in CNH bonds, or so-called dim sum corporate bonds, are expected to reach 350 billion renminbi-400 billion renminbi in 2012, underpinned by a mismatch of demand and supply, tight liquidity on the onshore market and diversification of funding by traditional issuers in the US dollar space, according to Standard Chartered Bank.
Jackie Cheung 15 Feb 2012

Investments in CNH bonds, or so-called dim sum corporate bonds, are expected to reach 350 billion renminbi-400 billion renminbi in 2012, underpinned by a mismatch of demand and supply, tight liquidity on the onshore market and diversification of funding by traditional issuers in the US dollar space, according to Standard Chartered Bank.

 
It adds that the CNH bond market, notably the high-yield space, has fallen behind the US dollar bond market in recent rallies as investors realized renminbi appreciation is no longer a one-way-bet following market volatility that caused concerns over the Chinese currency’s liquidity.
 
“The CNH bond space is undergoing a paradigm shift as it evolves into a more mature market with a better balance between demand and supply,” Sandeep Tharian, an analyst with Standard Chartered writes in a research note.
 
As renminbi appreciation expectations eases, Tharian expects higher-yielding corporate bonds to become the investors’ favorite choice, with around 50 percent to 55 percent of the offshore renminbi deposits to be deployed in this space. By that calculation, the renminbi bond base could reach 350 billion-400 billion renminbi by end-2012, although new supply may slow to 170 billion-180 billion renminbi from 190 billion renminbi last year.
 
While offshore issuance yields have been slowly creeping up, they are still attractive enough for higher-quality issuers to tap the offshore market rather than raise funds onshore, the bank says. It sees the demand side to remain strong this year, as many international investors appear keen to ride the renminbi appreciation story via dim sum bonds rather than outright instruments.
 
With the counterparty risk of such instruments perceived as more or less the same as the credit risk, especially of higher-quality credits and financial institutions, investors may prefer dim sum bonds for improved yield, along with currency appreciation, the bank comments.
 
 
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