GF Fund Management Co. is expanding its range of exchange-traded funds
that invest in China’s $9-trillion bond and stock markets to meet rising
global demand.
“We’re very interested in the U.S. ETF market, and are talking
with our partners to list more ETF products there, including A-shares,”
said Nathan Lin, chief executive officer of unit GF International
Investment Management Ltd., referring to stocks listed in China.
The Hong Kong-based asset manager has allocated 1-billion yuan
($162.6-million U.S.) of its quota under the Renminbi Qualified Foreign
Institutional Investor program to the $50-million Global X GF China Bond
ETF, which was the first such fund to access China’s interbank bond
market. The fund is looking to fill the rest of the quota in the first
quarter of 2015 and then apply for more, said Lin. RQFII allows yuan
raised offshore to be invested in China’s domestic securities.
Bonds and equities in the world’s largest emerging market are heading
for the biggest annual gains since at least 2009 as China opens up its
capital markets to global investors. The central bank cut interest rates
last month for the first time since 2012 and HSBC Holdings Plc and
Barclays Plc predict there will be another two reductions to support the
economy before the middle of next year. Economists predict this year’s
growth will be the slowest in more than two decades at 7.4 per cent.
“The turning point for the economy may not come soon, but policy-wise,
the worst has been left behind,” Lin said in a phone interview
yesterday. The expectation of relatively loose monetary environment and
government support for the economy will be supportive for bonds and
stocks, he added.
Bull market
The ChinaBond Composite Total Return
Index, which tracks both sovereign and corporate debt, gained 11 per
cent this year and is set for the biggest annual advance since 2008,
while the Shanghai Composite Index jumped 31 per cent, the most since
2009. The interbank market accounts for more than 90 per cent of
outstanding bonds by value, ChinaBond data show.
The Global X GF China Bond ETF that listed in the U.S. on Nov. 19 tracks
the S&P China Composite Select Bond Index, which has 45 per cent
allocated to central state-owned companies’ debt, 23 per cent in
sovereign notes and 32 per cent in quasi-sovereign bonds. It was the
second such product in the U.S., after Van Eck Global and China Asset
Management Co. started an ETF investing in onshore exchange-traded bonds
on Nov. 11, which has attracted $19.8-million.
“It offers higher yields, and good diversification opportunity as
historically China’s onshore bond market has a very low correlation with
global markets,” Lin said. At the same time “pricing on the interbank
bond market is more efficient, given its volume and depth,” he said.
ETF frenzy
Money managers have now registered
almost 40 ETFs tracking China’s shares and debt with U.S. regulators.
The $646-million Deutsche X-trackers Harvest CSI 300 China A-Shares ETF,
the largest in the U.S., closed 5.3 per cent above the value of its
holdings on Nov. 26, marking a record premium to its underlying assets.
GF International is also studying the possibility of listing products in
other markets, including Hong Kong and London, as it plans to set up a
unit in London and an office in New York, according to Lin.
