CSOP's China bond ETF grows 10-fold amid robust foreign inflows

SHANGHAI (Reuters) – A Hong Kong-listed China onshore bond fund saw its size jump 10-fold over the past month on strong money inflows, its asset manager said on Tuesday, underscoring growing foreign interest in the world’s second-biggest bond market.

FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration

The CSOP Bloomberg China Treasury + Policy Bank Bond Index ETF saw its asset under management (AUM) grow to more than 5 billion yuan ($784.61 million), after attracting “sizable” investments from institutional investors, CSOP Asset Management Ltd said in a statement.

The yuan-denominated bond ETF “helps further enrich the RMB (yuan) product range in Hong Kong to meet international investors’ demand for RMB asset allocation,” Gao Ming, chairman and executive director of ICBC (Asia), whose asset management unit is an adviser to the ETF, said in the statement.

Separately, an official from the company said net flows in the past month alone exceeded 4.5 billion yuan.

Listed as early as February 2014, the ETF has achieved returns of 30.54%, the company said in the statement.

The AUM explosion in CSOP’s China bond ETF comes as FTSE Russell started last month to include Chinese government bonds to its flagship global index.

It also comes as China successfully sold offshore sovereign bonds in Hong Kong recently, highlighting foreign confidence in China despite its economic slowdown, and the country’s real estate debt troubles that roiled Chinese dollar bond market.

The spread between China’s 10-year treasury bonds and their U.S. counterparts has narrowed over the past year, but remains attractive to yield-seeking global investors, at around 1.3 percentage points.

“The China onshore bonds offer a higher yield with a relatively lower exchange rate volatility compared to other major economies,” CSOP Asset Management said in the statement.

“In addition, the low correlation between China onshore bonds and global bonds would potentially provide greater portfolio diversification for investors.”

Foreign investors held Chinese government bonds worth a total of 2.3 trillion yuan at the end of October, the highest level on record and up 1.06% from a month earlier.

($1 = 6.3726 yuan)

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