New high-yield yuan bond offers good returns but with inevitable risks
New high-yield dim sum bond fund arrives just as regulator warns about such investment
High-yield yuan bonds were excellent performers and extremely popular investments last year. The Investment Funds Association said Hongkongers spent US$36.9 billion on high-yield funds last year, more than three times as much as on equity funds.
Mainland firms drove the Asian high-yield market. The issuers, in particular property companies, dominated corporate issuance of high-yield bonds. Surprisingly, however, until recently there has been no high-yield yuan bond fund approved for sale in Hong Kong.
BOCHK Asset Management has now addressed that void. On March 6, the firm launched its BOCHK All-weather RMB High Yield Bond Fund, the first high-yield yuan bond fund authorised by the Securities and Futures Commission. Subscription is open until this Friday.
Let us be clear about what this fund is and is not. It is not the first fund to invest in high-yield yuan bonds, as some funds already offer such exposure. The BOCHK fund does not even invest exclusively in yuan bonds - it reserves the right to invest in securities in other currencies. Nor is it exclusively a bond fund: it has a wide mandate to invest in a variety of instruments.
It is, however, the first fund offered in Hong Kong that is denominated in yuan and invests only in high-yield debt (securities that are rated BB-plus or below, or are unrated). The fund is effectively a vehicle to buy high-yield dim sum bonds, or corporate yuan bonds sold in Hong Kong.
Michael Ha Cheuk-wah, the head of marketing and client services at BOCHK Asset Management, says the fund will invest 30 to 35 per cent of its capital in mainland property bonds, and 30 per cent in bonds issued by mainland industrial firms.
This, for many, is a tantalising investment opportunity. Mainland property bonds have been outstanding performers of late. For example, if someone bought Yuzhou Properties due 2015 bond in January 2012, they would be sitting on substantial capital gains and an annual yield of about 25 per cent.