Ping An of China Asset Management, which at end-April closed a 500 million yuan (HK$600 million) bond fund, marketed its fund by noting the average yield for yuan bonds was 1.5 to 2 per cent.
While that's not so exciting, the fund's overseers think they can increase their returns to about 4 per cent and, indeed, the coupon rate of the invested capital is currently 3.9 per cent, Ping An says.
That's not very exciting, either. But if you add an expected 5 per cent yuan appreciation against the Hong Kong dollar by year's end, that starts to look attractive. And Ping An's yield-enhancement plans could provide clues to other funds about how to squeeze decent returns from yuan securities.
Benjamin Rudd, the firm's head of overseas investment, says Ping An has a number of advantages. Firstly, as an arm of an insurance firm, the entity is familiar with bond investments, as these securities line up nicely with the long-dated nature of insurance policies. (Insurers often invest clients' premium payments in bonds, to create regular long-term income to cover policy holders' eventual claims.)
As Ping An has been such an active investor in mainland bonds, it has built an in-house credit analysis team to review the mainland's often unrated issuers.
As mainland firms now come to issue yuan bonds in Hong Kong, Ping An knows many of these issuers well, so it has a good read of the correct pricing for their bonds.
