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Bright prospects for offshore RMB bonds in long term

Over the past five weeks, we have given the lowdown on the many advantages of offshore renminbi (RMB) bonds. These include higher yields, shorter duration that makes them less sensitive to fluctuations in interest rates, good credit quality, the increasingly globalised base of issuers, and the yuan's expected upside potential.

Given the Chinese government's efforts in transforming the economy and reforming the financial market, the long-term prospects of offshore RMB bonds are expected to be even brighter.

In fact, the offshore RMB bond market has seen 6-per-cent growth since the beginning of the year, beating global bonds and Asia's local-currency bonds hands down. Despite increasing market fluctuations since May, when the US Federal Reserve hinted at reducing the scale of quantitative easing, the offshore RMB bond market is still healthy compared with other global credit markets.

Looking at the growth prospects of the offshore RMB bond market, the reform blueprint laid down by the Chinese Communist Party's Third Plenum last year reveals the Chinese government's determination to transform the economy. A market-led economy is emphasised, with an attempt to diminish the influence of state-owned enterprises and banks on the economy.

Government efforts to expedite the liberalisation of interest rates and the free conversion of RMB capital accounts are good for the long-term development of the capital market, and the RMB bond market is expected to benefit as well.

Last June, the Bank of England and the People's Bank of China agreed on a sterling/renminbi currency swap with a maximum value of 200 billion yuan (Bt1.1 trillion).

Not only will these measures attract more foreign institutions to the Chinese market, they make it possible for China to converge with the global standards in market regulation. Eventually, offshore RMB bonds will see substantial growth in market size, creditability and liquidity, offering more attractive opportunities for investors.

With these advantages and positive policy support, offshore RMB bonds are gradually gaining popularity with institutional and retail investors as an asset class in its own right. Investors may consider consulting bond professionals with a thorough understanding of the mainland market and a proven track record to explore desirable investment opportunities in this area.

BONNIE LAM is managing director and head of wholesale business, HSBC Global Asset Management,

Asia-Pacific.


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