Asset manager Aberdeen Standard Investments has launched the Aberdeen Global – China Onshore Bond Fund.
The Luxembourg-domiciled fund will be managed by Aberdeen Standard’s Asian fixed income team.
China has taken bold steps to open its domestic bond market — which is the third largest in the world after the United States and Japan — to international investors over the last couple of years.
Foreign ownership of Chinese onshore bonds reached Rmb1.36tn (€183bn) at the end of March, an increase of more than 60% from a year earlier, according to the Financial Times.
In April, Bloomberg Barclays Indices announced plans to add Chinese renminbi-denominated government and policy bank bonds to the widely-tracked index. They will be phased in over a 20-month period beginning April 2019.
“Chinese bonds bring diversity to portfolios, relatively attractive yields compared to other comparable economies and the independence of Chinese policymakers means that the bond market is relatively less correlated to other bond markets globally,” the group said in a statement.
This low correlation makes investing in the China market particularly attractive in a rising interest rate environment in other major markets, the group said.
Government debt and investment grade corporates
Despite recent volatility in emerging markets, local currency Chinese bonds have delivered positive returns and have been one of the top performing global bond markets over the last year according to data from Bloomberg.
The fund will primarily invest in liquid government securities and highly rated/high quality policy bank, quasi sovereign and investment grade corporate bonds in the mainland Chinese bond market, issued in onshore renminbi. The primary investment strategies deployed will be interest rate (duration/curve) with some credit strategies.
Aberdeen Standard Investments global head of fixed income Craig Macdonald said: “There is already demand for Chinese bonds from global investors because of the relatively attractive yield and low correlation of the market to global peers. That demand will increase significantly when Chinese bonds are included in broader market indices.”
Aberdeen Standard Investments head of Asian fixed income Adam McCabe said: “The Chinese economy is the world’s second largest behind the US. However, it is still developing, with a very different growth path to that of mature G10 countries. The yields and diversification benefits are attractive but a thorough investment process is vital.”
In May 2018 Aberdeen Standard launched its first onshore private fund in China and completed its initial fund offering to eligible domestic investors.
The fund will initially be registered for sale in Luxembourg and Italy, with the intention of further registration in Belgium, Denmark, France, Germany, Netherlands, Spain, and Switzerland.