Foreign investments in onshore Chinese bonds have been a prime source of income with their high yield offerings. According to data released by the State Administration of Foreign Exchange last week, net purchases of bonds by foreign funds increased a whopping 104 percent from April to US$19.4 billion.
To complement that data, Chinese banks reported a 61% increase in foreign exchange trading to $23.8 billion. This data suggests that more individuals and companies in China are converting US dollars into the local currency.
“Overseas investors are showing great interest in the Chinese bond market because its sovereign treasury bonds have relatively strong returns,” said Robin Xing, Morgan Stanley’s chief China economist, via a South China Morning Post article.
Here are a pair of China-focused bond exchange-traded funds (ETFs) fixed income investors can consider:
- VanEck Vectors ChinaAMC China Bond ETF (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 (“RMB”)-denominated bonds issued in the People’s Republic of China (“China” or the “PRC”) by Chinese credit, governmental and quasi-governmental (e.g., policy banks) issuers (“RMB Bonds”).
- KraneShares CCBS China Corporate High Yield Bond USD Index ETF (KCCB): seeks to provide investment results that, before fees and expenses, track the price and yield performance of a specific fixed income securities index. The fund’s current index is the Solactive USD China Corporate High Yield Bond Index. Under normal circumstances, the fund will invest at least 80% of its total assets in components of the underlying index and to-be-announced transactions representing such components. The underlying index seeks to track the performance of outstanding high yield debt securities denominated in U.S. dollars issued by Chinese companies.
Investors contemplating a high yield option can take a look at the Goldman Sachs Access High Yield Corporate Bond ETF (GHYB). GHYB seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FTSE Goldman Sachs High Yield Corporate Bond Index.
The fund seeks to achieve its investment objective by investing at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index. The index is a rules-based index that is designed to measure the performance of high yield corporate bonds denominated in U.S. dollars that meet certain liquidity and fundamental screening criteria.