Nikko Asset Management and Industrial and Commercial Bank of China (Singapore Branch) (ICBC SG) launched on Monday (October 26) the NikkoAM-ICBCSG China Bond ETF, which seeks to provide investors with transparent and easy access to Chinese government and policy bank bonds.
Through the exchange traded funds, investors outside China will be able to invest in the ChinaBond ICBC 1-10 Year Treasury and Policy Bank Bond Index. The onshore index comprises government bonds issued by the China Ministry of Finance, and bonds issued by policy banks such as the Agriculture Development Bank of China, China Development Bank, and Export-Import Bank of China.
The index provider, ChinaBond Pricing Center (CBPC), is the leading pricing and index provider by market share in China, the world’s second largest fixed income market. CBPC is a subsidiary of China Central Depository and Clearing Co., Ltd. (CCDC), a wholly state-owned financial institution approved and established by the State Council of China. CCDC provides central registration, depository and settlement services for China’s onshore renminbi bonds.
Notes ICBC SG general manager Hu Fang: “Last year, ICBC and CBPC jointly launched the ChinaBond-ICBC RMB Bond Index, which provides market participants with a representative and reputable performance benchmark for investing in RMB bonds in China. The Singapore Exchange (SGX) is the first exchange to distribute these bond indices outside of China. Today, we are pleased that Nikko AM, a leading ETF provider in Asia, is launching the first ETF linked to this index. As the sole RMB clearing bank in Singapore, ICBC SG will continue to play an active role in providing new channels for foreign investors to seize the opportunities in China’s market.”
The initial offer period of the NikkoAM-ICBCSG China Bond ETF is from October 26 to November 17 2020. The ETF is available in two different listed share classes - an “income” share class that distributes dividends semi-annually and an “accumulation” share class without dividends. The income share class will be denominated in Singapore dollar, while the accumulation share class will be denominated in renminbi but traded in both renminbi and the US dollar on SGX. Both share classes will list on the Singapore exchange on November 24.
“We are delighted to collaborate with ICBC, the top investor in CIBM (China Interbank Bond Market) with unparalleled connections in China, on the NikkoAM-ICBCSG China Bond ETF. Our footprints are different and highly complementary. Our thinking is aligned in wanting to be an important part of offering progressive solutions to access one of the largest growing asset classes, supporting Singapore’s ambition to be a leading RMB hub,” says Eleanor Seet, head of Asia ex-Japan at Nikko Asset Management.
The sheer size of the China RMB bond market makes China RMB bonds a compelling investment, according to Nikko AM. China is the second largest and fastest growing bond market in the world. In spite of the renminbi having been officially designated a reserve currency by the IMF since 2016, foreign participation is disproportionately low, although it has already been increasing. Foreign participation is set to rise further with the opening up of the CIBM for foreign investors.
Phillip Yeo, joint global head of ETF business at Nikko AM, notes that Chinese bonds have higher yields than bonds of similar credit quality in the rest of the world. He finds bonds from Chinese policy banks particularly interesting. “While rated equivalently by international credit rating agencies with China government bonds at ‘A-‘, policy bank bonds enjoy a higher yield of approximately 0.5%. The NikkoAM-ICBCSG China Bond ETF invests into a combination of Chinese government bonds and the higher yielding quasi-sovereign policy bank bonds. This is a convenient and low-cost way to access China bonds as well as the RMB currency.”
