Yuan funds prove 'lure' for foreign capital

PUBLISHED : Monday, 20 February, 2012, 12:00am
UPDATED : Monday, 20 February, 2012, 12:00am


The lure of high returns on yuan bonds is encouraging foreign investors to place capital with the first offshore yuan-denominated funds now being marketed abroad, according to James Wang, the chief investment officer of Citic Securities International Investment Management.

The Hong Kong-headquartered offshore arm of the mainland's No 1 brokerage, Citic Securities, Citic Securities International had won the backing of several major foreign institutional investors, including European insurers, for its first yuan fund, Wang said.

'Investment returns on Chinese bonds these days are much more attractive than bond markets in Europe or Japan,' Wang said.

'And, we will be investing 80 per cent of the capital we raise in the mainland's bond market.'

The company was one of the first institutions to win permission to join Beijing's Renminbi Qualified Foreign Institutional Investor (RQFII) pilot scheme designed for Hong Kong's offshore yuan market, securing a 900 million yuan (HK$1.1 trillion) quota for its yuan fund.

Despite what he described as a 'warm response' from foreign investors, the company decided not to use up its full yuan quota, Wang said, because it wanted to keep some of the quota in reserve for more sophisticated yuan products that were still in the pipeline.

'Hong Kong has a large pool of yuan savings and rather than keeping their yuan in bank deposits where they earn almost zero interest, investors can't wait for more channels offering higher returns,' Wang said.

Yuan deposits in Hong Kong stand at around 600 billion yuan and both institutional and retail investors have complained about the lack of investment channels to diversify their yuan holdings.

Wang helped Citic Securities open the Hong Kong-based asset management arm during the 2008 financial crisis when some foreign banks and funds were closing offices in the city.

Citic Securities also tried to acquire legendary Wall Street bank Bear Stearns in 2008.

The deal fell through in the end, although top bosses at Citic Securities have said they will not give up on their ambitions to expand abroad.

'We want to make Hong Kong a good platform for our international business and we focus on both international clients, including many sovereign wealth funds, and big financial institutions and local retail investors,' Wang said.

While other banks were laying off staff, Citic Securities International was expanding, Wang added, and one of his top challenges was to find talented fund managers, risk control specialists, and marketing and public relations staff to help with the launch of more yuan fund products in Hong Kong.

Wang said one big Western institutional investor, who he declined to name, had asked to make an one-off deal with his firm to buy the entire 900 million yuan fund.

However, Wang rejected the deal because he wants to make its RQFII business a new channel to diversify and reach more clients in Hong Kong.

State-owned enterprises like Citic Securities do not have a long history in Hong Kong, compared with HSBC and Standard Chartered.

'The more diversified, and to include more local Hong Kong customers, the better, because we really want to build up our name and develop a long-term relationship here,' Wang said.