image

Bonds

Invesco launches Belt and Road bond fund for retail investors

With target volatility of 4pc, new fund may potentially apply for approval for mutual recognition after a year, when it’s assets under management are expected to top US$31m

PUBLISHED : Friday, 02 March, 2018, 7:31am
UPDATED : Friday, 02 March, 2018, 10:51am

Invesco, the international asset manager, has launched a Belt and Road bond fund – the first such fund approved by the Securities and Futures Commission for retail investors – aimed at capturing investment opportunities arising from China’s economic initiative linking 65 countries across Asia and beyond.

The open-ended fund will invest in dollar-denominated bonds across different sectors and be issued by countries situated along the ancient Silk Road trading routes involved in the new initiative, which is expected to generate a bond market worth US$1 trillion in coming years, said Terry Pan San-kong, chief executive officer, Greater China, Southeast Asia and Korea at Invesco.

The Atlanta, US-headquartered Invesco has fixed income assets under management of US$312.1 billion.

The new fund has a target volatility of 4 per cent, and may potentially apply for approval for mutual recognition after a year, when it’s assets under management are expected to top 200 million yuan (US$31 million), Pan added.

“While the Belt and Road is led by China, other governments will also have their own investments,” Pan said. “These economies will benefit from [planned] infrastructure development so there will be different investment opportunities available.”

President Xi Jinping first unveiled the Belt and Road concept in 2013. It potentially will involve projects in 65 countries on three continents, stretching from Kazakhstan and Uzbekistan, to Sri Lanka, to Russia, Thailand, Malaysia and Indonesia.

Invesco estimates China will invest US$150-200 billion annually for the next 5-10 years, building ports, infrastructure, coal mines, railways, roads, and oil pipelines.

We have changed our model now, and should not look at those countries exporting to China, but instead those that will receive investments and funds from China directly
Ken Hu Ka-lam, Invesco’s fixed income chief investment officer for Asia-Pacific

The Asian Infrastructure Investment Bank was created the same year with the aim of funding what are expected to be multifaceted projects across the whole region.

Private equity funds have also started investing in these countries in recent years, with some infrastructure already in commercial use.

And China is exporting technology to the countries involved, too, as local materials are likely to be used to build many of the planned facilities.

Ken Hu Ka-lam, Invesco’s fixed income chief investment officer for Asia-Pacific, said the levels of funding involved will inevitably make these economies stronger financially and economically, pointing to the possibility of improved future sovereign credit ratings that could mean further gains, for instance.

“We used to pick emerging markets that exported raw materials and commodities to China, and that resulted in higher prices,” said Hu

“But we have changed our model now, and should not look at those countries exporting to China, but instead those that will receive investments and funds from China directly.”

A lot of the projects sites were still greenfield areas when the Belt and Road was first announced, but after five years in the making, ports and railways are now in operation and generating cash flow so now is the time to reap the rewards, Hu added.

“The less developed and high-yield countries are exactly the ones where China’s foreign direct investment money will flow, resulting in a bigger and more positive impact.”

business-article-page