With a view to capturing opportunities in the rapidly growing offshore renminbi market, Bank of China (Hong Kong) and FTSE Group have forged a partnership to develop a new offshore renminbi bond index series.

Tracking the performance of offshore renminbi bonds (dim sum bonds), the series that could be launched as early as October will address the indexing needs of such market participants as asset managers, exchange-traded funds (ETFs) and pension funds.
In addition, FTSE will assist in rebranding the existing offshore renminbi bond indices launched by BOCHK in 2010.

The partnership reflects a favourable view of a more globalized offshore renminbi bond market, now that the proportion of non-Chinese and non-Hong Kong issuances has grown to 20% of the total dim sum bond issuances in Hong Kong.

Singapore and London have followed suit, building up the necessary infrastructure to attract issuers. Recently, a renminbi-denominated bond was issued in Taiwan, the first 'Formosa bond'.

"The Hong Kong offshore renminbi bond market has matured to the stage that it is now very global. That's why we are delighted to have this partnership. FTSE will help us expand the coverage as well as escalate quality," King Au (区景麟), chief executive officer, BOCHK Asset Management, told The Asset, noting that investors are in need of benchmark indices as reference for market performances.

There are increasing numbers of dim sum bond funds, which invest in a portfolio of offshore renminbi bonds. Meanwhile, more pension funds, endowment funds and even central banks are looking to invest part of their portfolio in dim sum bonds.

"There was a positive feedback from the market. We have received numerous enquiries from charity funds, local pension funds, the Hospital Authority in Hong Kong about either the bond index or dim sum bonds. They believe dim sum bonds could be part of their portfolio," says Au.

Mark Makepeace, chief executive of FTSE Group, points out that at least two ETFs tracking dim sum bond indices are expected to be launched on the Hong Kong exchange. "As more interest start to focus on renminbi bonds, it can be the most actively traded stock. This will open up many opportunities."

No ETFs with a portfolio of dim sum bond as underlying are trading in Hong Kong yet. A few dim sum bond ETF/ETNs traded in the US are the Market Vectors-Chinese Renminbi/USD Exchange-Traded Note, PowerShares Chinese Yuan Dim Sum Bond Portfolio and Guggenheim Yuan Bond ETF.

Au remains positive about the development of the offshore renminbi bond market in 2013, although there is speculation that Chinese authorities may widen the currency's trading band. "Compared to other currencies, the renminbi has much smaller volatilities. In terms of yield, it is the only currency with real interest rates as many other countries are adopting monetary easing modes."

The existing offshore renminbi bond series run by BOCHK includes an offshore renminbi bond index with a universe of all offshore renminbi bonds; a Chinese sovereign bond index tracking central government and policy banks' issuances; an investment-grade bond index and an offshore renminbi one-year to three-year central government bond index. In addition to BOCHK, there are five banks operating offshore renminbi indices, including HSBC and Citigroup