Conditions in EM Bonds Spell Opportunity for China ETF

Global asset management firm Janus Henderson recently highlighted emerging markets (EM) bonds in a report, noting that the current market environment could be ripe with opportunities in EM debt.

Of course, EM bonds have been feeling the downward pressure of rising interest rates and a strengthening U.S. dollar over the past couple of years. However, the proverbial tide could be turning in favor of EM debt. The global macroeconomic environment continues to develop amid eventual central bank monetary policy loosening.

“In the near-term, the uncertain global macro environment is the key factor that is driving the outlook and trajectory for the asset class in the remainder of 2023, but we expect to see more positive flow dynamics over the medium term on the back of a widening economic growth differential between emerging markets (EM) and developed markets (DM),” the report said.

When mentioning EM assets, China is the proverbial tide that lifts all boats. The second-largest economy is currently undergoing a pandemic-related malaise, but recent government stimulus measures could help prop up its recovery.

“Within the EM space, developing Asia is a particularly bright spot, expected to post growth rates of 5.3% in 2023 and 5% in 2024, according to the IMF, but this is dependent on speed of the China recovery,” the report added further.

Targeted China Bond Exposure

Fixed income investors currently looking at China may see opportunities as the country looks to re-ignite economic growth. In the meantime, the government may need to issue bonds to help fund stimulus strategies, which could affect the KraneShares Bloomberg China Bond Inclusion Index ETF (KBND).

KBND offers investors an ideal option to diversify their bond portfolios. The fund 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.

Overall features of KBND include:

  • Diversified investments in government bonds and high-quality corporate bonds. The fund attempts to provide attractive yields relative to other government and investment-grade bond markets with a monthly distribution. As of August 8, its 30-day SEC yield is 1.94%, and it has an unsubsidized 30-day SEC yield of 1.74%.
  • Access to the securities included in Bloomberg broad fixed income indexes and investment opportunities within the second-largest bond market in the world.
  • Low correlations to other major bond markets for more varied fixed income portfolios.

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