China theme underpins World Bank bond fund
The World Bank has tied up with Bank of China (Hong Kong) to launch an emerging market bond fund that allows retail investors to bet on gains in the currencies of China's major trading partners.
It is the second retail fund to be launched by the World Bank, which set up a Japanese retail fund in 2005. This time, the World Bank chose BOC (HK) as its exclusive partner because it believed Hong Kong was the ideal base for marketing the fund in China.
'China has changed substantially over the last 30 years,' Klaus Rohland, the World Bank's country director for China, Mongolia and Korea, said as he co-hosted a launch ceremony at BOC (HK) headquarters in Central.
'China used to be a poor country 30 years ago, but now it is the world's second-largest economy. China now has a big influence in trade, export and commodities worldwide.'
The Washington-based World Bank is a global institution that lends money to developing countries to alleviate poverty and lift living standards. It is a major bond issuer around the world, with the highest possible credit ratings from Standard & Poor's and Moody's Investors Service.
The BOC (HK) World Bank Emerging Markets Bond Fund has a China theme, investing 85 per cent of its assets in World Bank-issued debt securities denominated in 40 currencies of countries trading with China, including Australia, Brazil, Chile, Colombia, India and South Africa. Investing in the fund would be equivalent to investing in a basket of debt securities denominated in various currencies.
'The fund allows investors to capitalise on China's rising economic influence by focusing on its trading partners. They are either exporting commodities to mainland China or they are importing manufactured goods from mainland China. These countries have high growth potential due to China's rapid economic development,' said Au King-lun, chief executive of BOC (HK) Asset Management, which will be responsible for the fund's investments.
The fund will invest no more than 15 per cent of its assets in US Treasury securities or Chinese government bonds and bank deposits. The bond fund is an open-ended fund authorised by the Securities and Futures Commission, so it can be sold to retail investors in Hong Kong from tomorrow to July 20 at any branch of BOC (HK), Nanyang Commercial Bank and Chiyu Banking Corporation. The minimum initial investment is US$1,000.
'Even though the euro-zone crisis is not yet resolved, we still believe investors want a good investment that is low-risk but can offer a better return than the interest rate paid on bank deposits,' Au said.
'That's why it's important to invest in debt securities issued by the World Bank, which has the highest possible credit rating.
'Many Asian currencies have the prospect of appreciating against the US dollar, so investors can enjoy a good return from the currency appreciation over the long term.'
But Au reminded investors currencies might also depreciate, and the bonds were issued in emerging markets, which might also involve more risk than developed countries.
The annual management fee for the BOC (HK) World Bank Emerging Markets Bond Fund•The subscription fee is up to 5.25 per cent