U.S. government debt has long been a go-to safe haven both domestically and internationally. China could be challenging for that top spot as more global investors flock to the country’s bonds, available in an ETF wrapper via the VanEck Vectors ChinaAMC China Bond ETF (CBON).
“Chinese yuan-denominated bonds are being snapped up by global investors,” a Global Times article pointed out. “Overseas investors held a total of 3.06 trillion yuan ($473 billion) of Chinese bonds in January, up 62.09 percent from the same period last year and a gain of 5.96 percent from the end of December, according to the latest data from China Central Depository and Clearing Co. January also marked the 26th consecutive month that foreign investors racked up their holdings of Chinese yuan-denominated bonds.”
“Investors’ rising interest in purchasing Chinese bonds reflects a more objective and pragmatic approach toward the Chinese economy, which overcomes the political and ideological bias and may explain why China remains a premium engine of the world’s economy,” the article added further.
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-denominated bonds issued in the People’s Republic of China by Chinese credit, governmental, and quasi-governmental (such as policy banks) issuers (Renminbi Bonds). CBON’s net expense ratio comes in at 0.50%.
CBON gives fixed income investors:
- Yield Premium: Attractive yield pickup over developed markets bonds.
- A Portfolio Diversifier: RMB-denominated bonds have historically exhibited low correlation to other asset classes.
- Access to the world’s second largest bond market: Broad exposure to bonds issued by the central government, policy banks, and corporations.
Investors Continue to Grow Bullish on China
What’s feeding this demand for Chinese bonds? Financial professionals are growing increasingly bullish on China’s recovery.
“From the perspective of financial professionals, the main reason for foreign investors to buy Chinese bonds is rooted in their bullish view on the Chinese economy,” the article added. “A slew of major economic indicators are sufficient to tell the resilience of China’s economic fundamentals despite the strong headwinds caused by the coronavirus pandemic last year. China’s GDP in 2020 expanded 2.3 percent, making it the first major economy to recover globally.”
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