Even after the country was the epicenter of the Covid-19 pandemic, it’s not stopping fixed income investors from wanting a piece of China. Chinese bonds are no longer an acquired taste as investors look to the second largest economy for debt opportunities.

Per a MarketWatch report, “investors are overcoming their long aversion to China’s bond market as they take up a larger share of global benchmark bond indexes. Debt from the world’s second largest economy historically has been overlooked by foreign investors as it’s closed capital markets prevented outside money managers from taking funds in and out of the country at will.”

“But Chinese bonds have been forcing their way slowly into the holdings of overseas funds based in New York or in London, thanks in large part to recent initiatives by Beijing to open up its financial markets to the outside world and its resulting inclusion into passive investing indexes – which carry significant sway over how, and where, portfolio managers allocate their cash,” the report added.

Getting Chinese Bond Exposure

For fixed income investors looking to add Chinese bonds via exchange-traded funds (ETFs), here’s a pair to consider:

• VanEck Vectors ChinaAMC China Bond ETF (CBON): seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ChinaBond China High Quality Bond Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index is comprised of fixed-rate, Renminbi (“RMB”)-denominated bonds issued in the People’s Republic of China (“China” or the “PRC”) by Chinese credit, governmental and quasi-governmental (e.g., policy banks) issuers (“RMB Bonds”).
• KraneShares CCBS China Corporate High Yield Bond USD Index ETF (KCCB): seeks to provide investment results that, before fees and expenses, track the price and yield performance of a specific fixed income securities index. The fund’s current index is the Solactive USD China Corporate High Yield Bond Index. Under normal circumstances, the fund will invest at least 80% of its total assets in components of the underlying index and to-be-announced transactions representing such components. The underlying index seeks to track the performance of outstanding high yield debt securities denominated in U.S. dollars issued by Chinese companies.

Reaching for Higher Yields

Investors contemplating a high yield option can take a look at the Goldman Sachs Access High Yield Corporate Bond ETF (GHYB). GHYB seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Goldman Sachs High Yield Corporate Bond Index.

The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of high yield corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.

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