Chinese bonds offer returns, stability, ICBC says

New Zealand financial advisers are being asked to consider Chinese government and corporate bonds as a way to give their clients a stake in that country’s economic growth.

Tuesday, November 17th 2015, 5:59AM

by Susan Edmunds

The Industrial and Commercial Bank of China (ICBC) has held roadshows in Hong Kong, Tawian, Korea, Japan, Australia and New Zealand to help raise awareness of the bonds available and how to invest in them.

Executive director and general manager of ICBC in New Zealand Karen Hou said New Zealand financial advisers and their clients had very little or no knowledge of Chinese bonds.

“This is the reason why ICBC and China Central Depository and Clearing (CCDC) have decided to educate the global financial markets,” she said.

“The Chinese financial regulatory authorities have removed several restrictions on foreign investments in China and CCDC and ICBC believes that there will be potential investment opportunities for NZ banks and wealth funds. This provides an opportunity for investors to diversify fixed-income security portfolio through investment in Chinese bonds.”

She said there were many options that would sit different investors and good liquidity. “As of September 30 2015, the bonds depositary had reached RMB39.55 trillion ($949.3 billion) in CIBM. In the first nine months of this year, the trading volume was as high as RMB58 trillion. The issuance in the primary market totals more than RMB14 trillion since the start of 2015.”

China’s inter-bank bond issuance was worth RMB10.4 trillion in 2014.

ICBC said even though the Chinese economy had slowed, its 6.9% growth rate still represented RMB700 billion, equivalent to the country’s 2010 growth rate. The country is on track to create nine million jobs this year.

Hou said the Chinese bond market offered higher returns and more stability than foreign investors could achieve elsewhere.

But one of the biggest hurdles to overcome was the perception of risk.

“Following the default crisis, bonds in the Eurozone are now mired in negative interest rates,” Hou said.

“Compared with other emerging economies, CIBM offers a much more stable and secure social and financial environment, while bonds in other BRICS countries may enjoy high nominal returns but come with the potential risk of currency depreciation and high inflation."

She said: "Compared with developed economies, there is at least average 100bp spread in the yields. Therefore, considering the return and the risk embedded, CIBM currently stands as one of the best bond markets in the world.”

Chinese bonds can be bought through ICBC.

Christian Hawkesby, of Harbour Asset Management, said most advisers tended to use a manager or a fund to invest in global fixed interest. He said liquidity would be a major consideration.

Tags: bonds