Yield is still at historically low levels, but China’s debt market still offers attractive options through assets like the KraneShares CCBS China Corporate High Yield Bond USD Index ETF (KCCB).

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.

Overall, KCCB offers investors:

  1. USD-denominated exposure to China’s high yield bond market.
  2. Low correlation to U.S. and global markets.
  3. Co-management from China Construction Bank (CCB), the second largest bank in the world by assets.

KCCB Chart

A Strong Case for Chinese High-Yield Debt

At the height of the pandemic last year, it was difficult to make a case for the Chinese debt market.

“In a game-changing shift — compared by some to the birth of the euro — yuan-denominated debt has emerged as a refuge during this year’s global bond rout,” a Bloomberg article said. “Investors looking for diversification have piled in, seeking its relatively high yields and low correlation to other markets. While that partially reversed in March, as rising U.S. yields dimmed Chinese bonds’ appeal, the quick turnaround has underscored the resilience of demand and China’s growing clout since opening its fixed-income market.”

One of the advantages of diversification into Chinese debt is its lack of correlation to global rates. This gives fixed income portfolios a hedging option while seeking extra income from higher yielding assets.

“The underlying case for Chinese bonds is still very, very strong,” said Pramol Dhawan, head of emerging markets portfolio management at Pacific Investment Management Company LLC. “Because of its low correlation to global rates, its high nominal yields and high real yields form a very important part of portfolio construction.”

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