Dim sum bonds open new profits path for investors in Taiwan

Taiwan’s commercial banks have been earning sizeable profits through yuan deposits from the public, but there are challenges ahead.

Yuan holders on the island are now allowed to earn more than what they can get from just interest rates after Taiwanese regulators cleared local brokers to trade dim sum bonds from this month.

Before that, Taiwanese investors were only able to buy yuan-denominated bonds issued by Taiwan companies, or the so-called Formosa bonds.

Two weeks after the regulator gave its approval, 47 yuan-denominated dim sum bonds had been listed on the island’s exchange centre, Zhou Zifu, vice-president at Gre Tai Securities Market, a foundation that serves the bond trading market in Taiwan, told the South China Morning Post.

“Yuan deposit volume has been increasing rapidly since last year, but there … are very few mutual fund products and a limited number of Formosa bonds. Most of them, even institutional investors, chose to save yuan as deposits at banks,” Zhou said.

Taiwan has fewer than 30 Formosa bonds in issue since Beijing approved them last year. With a total size of only 16.4 billion yuan (HK$20.7 billion), they account for less than 6 per cent of the island’s yuan deposits.