Global X, the New York-based exchange traded funds provider known for its unique lineup of income and international offerings, added to its global income profile with the debut of the Global X GF China Bond ETF (NYSEArca: CHNB). The new ETF offers exposure to China’s massive onshore debt market.
The Global X GF China Bond ETF tracks the S&P China Composite Select Bond Index, which is designed to offer exposure to “Chinese sovereign bonds, agency bonds and bonds issued by Central State-Owned Enterprises (CSOEs) denominated in Chinese yuan,” according to S&P Dow Jones Indices.
CHNB’s underlying index only includes bonds with maturities of at least one year but no more than seven years. Included securities must be fixed rate non-zero coupon bonds, according to S&P Dow Jones Indices.
Global X partnered with GF International Investment Ltd. on the new ETF. In addition to the boom in popularity for China’s A-shares, the stocks trading on mainland bourses in Shanghai and Shenzhen, global investors have been craving increased access to China’s substantial onshore debt market. [ETF Issuers Look to Join A-Shares Party]
Issuers’ desire to increase offerings of Chinese onshore debt products is not surprising. Not only is China by far the largest emerging markets bond issuer, but its $1.5 trillion corporate bond market is the world’s largest.
“Until recently, foreign investors were largely limited to Chinese dim sum bonds, which are issued outside of mainland China and do not provide true access to China’s debt market. In contrast, the Global X GF China Bond ETF will only hold Chinese yuan-denominated debt issued in mainland China, accessing a debt market currently valued at approximately $4.5 trillion. Following the US and Japan, the country’s local currency debt market is the 3rd largest in the world,” according to a statement issued by Global X.
CHNB allocates 45% of its weight to bonds issued by state-owned enterprises, 32% to policy bank notes and 23% to government debt. S&P mandates that issues from central state-owned enterprises included in CHNB’s index carry an AAA rating from at least on of China’s major ratings agencies.
The new ETF was seeded with $27 million, an impressive sum for a new fund. CHNB will compete directly with the Market Vectors ChinaAMC China Bond ETF (NYSEArca: CBON), which debuted last week. [New China Bond ETF Debuts]
“Global holdings of China’s onshore bonds climbed 59 percent this year as the central bank loosened monetary policy to counter an economic slowdown. The nation’s sovereign bonds handed investors an average return of 11.3 percent, trailing only India’s performance,” according to Bloomberg.
ETF Trends editorial team contributed to this post.