Diversify a Bond Portfolio With Exposure to China Debt

Fixed income investors looking to diversify their bond portfolios may want to take advantage of the bond market in China. That’s because the country is continuing to iron out its economic growth issues. A fresh injection of capital via bond sales can help, which is already happening.

“China will likely unleash 2.28 trillion yuan ($319 billion) of next year’s special local bond quota by the end of December, state media reported, a sign Beijing is moving early to boost growth in 2024,” Bloomberg reported, noting that local authorities “are expected to distribute 60% of next year’s special local government bond quota to provinces ahead of time, according to the Securities Daily.”

On a larger scale, China’s federal government has already issued a record number of bonds in the fourth quarter. It’s another sign that the government is doing what it can to revitalize economic growth heading into 2024.

“The Chinese government took a rare and unexpected decision in October to issue 1 trillion yuan ($141 billion) of additional sovereign bonds in the fourth quarter to finance infrastructure spending, widening the budget deficit as a percentage of GDP for 2023 to a record high of 3.8%,” Nikkei Asia reported.

Investors looking to take advantage of the recent and forthcoming issuance can get exposure to China’s debt market with core exposure via the KraneShares Bloomberg China Bond Inclusion Index ETF (KBND). With the expectation that China’s government can right the economic ship, KBND offers investors an ideal option to obtain monthly income and get potential upside. KBND is benchmarked to the Bloomberg China Inclusion Focused Bond Index. This index is designed to track the performance of China’s onshore renminbi-denominated bond market.

Uncorrelated Exposure to Other Bond Markets

The Chinese bond market represents the second largest in the world. KBND provides core exposure while maintaining diversification that’s uncorrelated to other bond markets around the globe.

“For investors seeking diversification within their global bond portfolios, KBND offers low correlations to other major bond markets,” the fund’s product website noted.

The fund is deeply diversified within the Chinese bond market. It offers a mix of government as well as high-quality corporate bonds. It attempts to provide attractive yields relative to other government and investment-grade bond markets with a monthly distribution. As of November 22, its 30-day SEC yield is 2.33%, and it has an unsubsidized 30-day SEC yield of 2.13%.

For more news, information, and analysis, visit the China Insights Channel.