The Hong Kong dollar debt market has recently enjoyed sustained growth, and one fund hoping to take advantage of this trend is State Street Global Advisors' ABF Pan Asia Bond Index Fund. Ramon Maronilla, portfolio manager at State Street Global Advisors, says the fund is the first exchange-traded Asian bond fund in Asia.
What investment return do you expect the ABF Pan Asia Bond Index Fund to deliver this year?
The year-to-date return of the fund as of end-August 2007 is at 2.75 per cent, while the accumulative return since inception (July 7, 2005) is at 17.30 per cent.
What factors are contributing to its success?
The fund has managed to deliver its objective which is to track the performance of the iBoxx ABF Pan-Asia Index. It has enjoyed investor interest as it gives investors easy access to eight diversified Asian local currency bond markets. The Asian bond markets have seen dramatic growth in the past years with continued development effort from both the government and private sectors - size continues to grow and liquidity is improving. Both domestic and international investors are active participants in these bond markets. The strong performance of Asian bonds and the local currencies along with moderate volatility also contributed to the fund's success in the past.
How do you come up with the different weightings in terms of the composition of the fund?
The iBoxx ABF Pan-Asia Index consists of different markets: China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore and Thailand. Market weights are determined based on a combination of the following factors - size of the local bond market, market liquidity, sovereign local debt rating, and market functionality. The weight of each country is constructed from an equal weighting baseline (12.5 per cent each) and adjusted. Market weights are reviewed annually.
The Hong Kong dollar debt market has continually grown in recent years. Do you expect this trend to continue and for how long?
The Hong Kong dollar debt market is one of the more developed markets in the region. The government bond market is about 9 per cent of GDP, while the corporate bond market is 42 per cent of GDP. Compared with other developed markets, this current market size still has opportunities for growth particularly for the corporate bond sector. Corporate bonds will continue to develop as an alternative capital funding source aside from the equities and bank loans. Also, demand from both domestic and international investors will continue to support this development.
Which country offers the best prospects for weighting in their bond market to increase over time?
From among the eight markets, China offers the best prospects for weighting increase with its dramatic growth in market size as well as improving infrastructure. Improved market functionality would support increased weight not only to China but to the other markets as well.
What's the minimum amount I can invest in the PAIF and what returns can I expect?
You can invest as low as the allowed minimum lots on the Hong Kong stock exchange where the fund is traded. Returns on the fund come from the steady coupon income, capital appreciation of the bonds as well as currency appreciation of local currencies.