As the Chinese government continues to wrestle with its economic woes, exchange traded fund (ETF) investors looking for income opportunities and potential future upside can look at the KraneShares Bloomberg China Bond Inclusion Index ETF (KBND).
In terms of potential upside, the Chinese government will play a pivotal role as it looks to inject stimulus measures to try and revitalize its economy. The start of 2023 looked promising before the aftereffects of a real estate development crisis helped to upend the early rally.
The effectiveness of the stimulus measures could help support the case for bullishness in Chinese bonds. Long-term government bonds were already seeing interest in July as investors bet on the prospect that the economic stimulus would eventually bear fruit.
“China’s ultra-long government bonds are seeing heated demand as the economy’s dire outlook and expectations for modest stimulus drive bets for further gains,” a Bloomberg article noted in July.
Fast forward to just a month later, and the government is already testing investor patience. In their view, a trickle of government funds to address economic growth needs to turn into a steady stream.
“Modest interest rate cuts and vague promises of support for debt-mired property developers have failed to restore sentiment, and fund managers are turning adamant that they need to see more government money flowing before they consider returning,” a Reuters report said.
“At this point there is confusion and, as long as there is confusion, then there’s lack of credibility and that means investors are more likely to stay away,” said Seema Shah, chief global strategist at Principal Global Investors in London.
KBND: Monthly Income and Upside
With the expectation that the Chinese 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, which is designed to track the performance of China’s onshore renminbi-denominated bond market.
The fund is deeply diversified, offering government bonds and 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 August 23, its 30-day SEC yield is 1.94%, and it has an unsubsidized 30-day SEC yield of 1.74%.
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