BofA Merrill Lynch Global Research has launched a new Dim Sum Index designed to track the performance of offshore bonds in Hong Kong denominated in the Chinese currency.
BofA Merrill Lynch’s Dim Sum Index covers about half of all outstanding debt denominated in CNH, or the Chinese currency deliverable in Hong Kong. It targets corporate, sovereign and quasi-government debt, including supranationals, with selection criteria that focus on the segments of the market that institutional investors are most interested in. To qualify for inclusion in the index, a bond must be denominated in CNH, have at least one year to maturity at the time of issuance and a month to maturity as of the rebalancing date, have a fixed coupon schedule and have at least CNH500 million in outstanding face value.
"The Dim Sum Index gives investors a comprehensive picture of the structure, risk characteristics and performance of this rapidly growing asset class," says Phil Galdi, head of Global Bond Index Research. Since its chosen start date, December 31, 2010, the total market capitalisation of the Dim Sum Index has nearly tripled to CNH103.5 billion (USD16.2 billion) at the end of 31 October and the number of issuers represented has nearly quadrupled to 58. "While the total capitalisation of the Dim Sum Index is still a long way off compared with the onshore China bond index, its rapid pace of growth attests to the interest it has attracted as foreign investors remain eager to gain access to China’s bond markets.”
The recent new rules announced by China extending the dim sum bond market to onshore corporates, relaxing rules for companies to bring renminbi funds onshore and allowing global banks to raise RMB bode well for more active participation in this asset.
"Hong Kong banks and foreign companies could be the next new source of issuers, in addition to onshore state-owned enterprises in China," says Michele Barlow, head of Asia Pacific Credit and Convertible Bonds research. "A broader range of issuers would help add depth to this growing and important asset class."