Global X Debuts China Bonds ETF (CHNB)

by on November 20, 2014 | ETFs Mentioned:

Wall Street started off the week on a relatively positive note, with the S&P 500 managing to log in a record close. Though Tuesday saw another day of record closes by the S&P 500 and the Dow, equities cooled off from highs by Wednesday in anticipation of the Federal Reserve’s minutes release. In economic news, the Commerce Department announced yesterday that housing starts fell 2.8% in October, while building permits rose 4.8%. Analysts expected a 0.8% rise in housing starts and a 0.6% rise in building permits.

Meanwhile in ETF news, this week the industry saw one new launch from Global X, which offers investors unique access to the Chinese fixed income market [see also ETF issuer Solutions Welcomes Industry Newcomers].

Chinese Onshore Bonds

Global X’s GF China Bonds ETF (CHNB) is the first fund to offer investors direct access to China’s onshore bond market. Until recently, the Chinese onshore fixed income market had been largely inaccessible to foreign investors due to investment restrictions. Despite its closed nature, it is one of the largest bond markets in the world, offers yields that have exceeded other comparable markets, and provides unique exposure to the domestic Chinese currency, the yuan.

The image below shows the size of China’s onshore market in comparison to the U.S. and Japan:

Global X Funds CHNB

Be sure to check out the fund’s investment case to learn more about the Chinese onshore market.

The fund obtains this objective by tracking the  S&P China Composite Select Bond Index, which invests in RMB-denominated bonds that are issued or distributed within mainland China. The index includes securities with a minimum maturity of one year and with an outstanding principal amount of RMB 1 billion. The index focuses only on those bonds at the high end of China’s quality spectrum, investing in RMB denominated bonds issued by governments, agencies, and Central State-Owned Enterprises (CSOEs) [see also How to Build an Income Portfolio with ETFs: Insights from David Fabian].

CHNB charges a net expense ratio of 0.50%, which is slightly more expensive than the other two ETFs that currently offer exposure to China bonds.

Commenting on the launch, CEO of Global X Funds Bruno del Ama stated “We worked vigorously with GF International to bring Chinese onshore bonds to market. Few asset classes of this size have been unavailable to US investors, and bringing direct access to Chinese government debt through an ETF presents a tremendous opportunity for institutions and investors seeking to diversify their income.”

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Disclosure: No positions at time of writing.