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RMB bond market remains on investors’ radar


Prepared by Hang Seng Indexes Company Limited – The inclusion of the renminbi (RMB) in the IMF’s Special Drawing Right (SDR) basket is an important milestone in the integration of the Chinese economy into the global financial system. It reflects the growing trend in the international use and trading of RMB.

Foreign issuers tend to acquire their RMB funding in the offshore market since they face a number of challenges concerning the issuance in the onshore market. Conversely, Mainland Chinese issuers are less affected by similar issues. 

From a foreign investor’s perspective, the offshore RMB bond market is relatively accessible while investing in the onshore RMB bond market is subject to constraints. For potential investors in the offshore RMB bond market, the Hang Seng Markit iBoxx Offshore RMB Bond Index family (HSM iBoxx) provides investors research solutions.

Development of the offshore RMB bond market

Although the first offshore RMB bond was issued back in 2007 by the China Development Bank, the market remained lacklustre until the Central government loosened the reins and allowed corporations to raise funds via this channel. 

Since then, the offshore RMB bond market has recorded significant growth in terms of total outstanding amounts, expanding from RMB30 billion in 2009 to RMB721 billion in 2014. In October 2014, the first RMB-denominated foreign sovereign bond was issued by the UK Government, marking the beginning of the participation of foreign governments in the offshore RMB bond market.

In 2015, the issuance amount dropped by about 25 per cent to RMB 420 billion and limited growth was recorded in the aggregated outstanding amount of the entire market. The reason for this may lie in the rising yield of the offshore RMB bond market against the onshore bond market. 

However, with the RMB becoming a more widely recognised and used currency, it is natural to expect that RMB funding needs will increase substantially and that a bright future lies ahead for the offshore bond market. 

Understanding the market via indexes

Similar to any stock market, indexes provide an overview of the market. In late 2014, Hang Seng Indexes partnered with Markit to launch HSM iBoxx to provide investors with an IOSCO-compliant tool for understanding the performance of the offshore RMB bond market. Besides serving as benchmarks, some indexes within the series can also be used as the underlying indexes for exchange-traded funds (ETFs).

The HSM iBoxx consists of more than 600 sub-indexes. As of the end of May 2016, the index universe is comprised of 269 offshore bonds that meet the minimum requirements on outstanding amounts, over RMB500 million, and an initial maturity of at least 18 months. Certificates of deposit are currently excluded from the index series universe due to their illiquid nature. 

The index performance of the Hang Seng Markit iBoxx Offshore RMB Bond Overall Index shows that the overall market historically delivered an average annual return of about 3 per cent and provided an expected yield of 4.31 per cent as at the end of May 2016. 

This information can assist investors to compare the return and risk of the market with other developed markets. The comprehensive set of sub-indexes within the HSM iBoxx allows investors to explore the opportunities offered by bonds with different characteristics that meet their own investment objectives, risk appetite and other preferences.

With the internationalisation of the RMB continuing to move forward, one should keep track of the upcoming changes of this emerging market and be ready to grasp the potential opportunities.

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The Hang Seng Markit iBoxx Offshore RMB Bond index family (Index) is calculated and owned by Markit Indices Limited (Markit Indices). “Hang Seng” is the service mark of Hang Seng Data Services Limited, “Markit” the service mark of Markit Group Limited and “iBoxx” the service mark of Markit Indices; all such marks are used under license or with permission. All information herein is provided strictly for private general reference only and all Index information may be revised at any time by Markit after first publication. None of such information constitutes any express or implied advice or recommendation by Hang Seng Indexes Company Limited, Markit Indices and/or their affiliates for any investments. Neither Markit Indices nor its affiliates (and the same with Hang Seng Indexes Company Limited and its affiliates) makes any representation or warranty as to the accuracy, completeness or reliability of any Index information at any particular time or accepts any liability whatsoever (whether in tort, contract or otherwise) for any damage or loss arising directly or indirectly from use of such information. 

Investment involves risks. Prospective investors should seek independent investment advice to ensure that any of their decisions is made with regard to their own investment objectives, financial circumstances and other particular needs. The past performance is not indicative of future performance.

Renminbi (RMB) is subject to exchange rate risk. Fluctuation in the exchange rate of RMB may result in losses in the event that the customer subsequently converts RMB into another currency (including Hong Kong Dollars). Exchange controls imposed by the relevant authorities may also adversely affect the applicable exchange rate. RMB is currently not freely convertible and conversion of RMB may be subject to certain policy, regulatory requirements and/or restrictions (which are subject to changes from time to time without notice). The actual conversion arrangement will depend on the policy, regulatory requirements and/or restrictions prevailing at the relevant time.

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