Aims to provide stable capital appreciation over the medium to long term through exposure to Renminbi (RMB) fixed income investments.
Incepted in 2010, the China Bond strategy aims to provide stable capital appreciation over the medium to long term through exposure to Renminbi (RMB) fixed income investments. The term RMB refers to both onshore RMB (“CNY”) and offshore RMB ("CNH"). Nikko AM also collaborates with Rongtong Fund Management, an affiliated joint venture company in China. Rongtong’s research team provides recommendations and constructs model portfolios. These research ideas help the Nikko AM Asian Fixed Income team to formulate views about the China bond market.
Our investment process seeks to deliver returns through multiple sources of alpha, utilising both top-down and bottom-up strategies. Our research approach utilises our proprietary Fundamental, Valuation and Technical (FVT) framework to distil the top- down and bottom-up perspectives from a multitude of macro-economic factors and issuer- and issue-specific characteristics, to add value within the defined levels of risks and constraints, using both qualitative and quantitative techniques. Our Internal Credit Rating (ICR) model, which Nikko AM has used since 2006, has been time and stress tested for its robustness.
For more details on our investment philosophy, Research and ESG (Environment, Social, and Governance) framework and investment team, please visit the Asian Fixed Income strategy page.
Nikko AM has a long-standing experience investing into China. Our track record goes back to 2010 when we launched our first offshore RMB bond product to tap on opportunities in this new and growing market segment. We were further granted our Renminbi Qualified Foreign Institutional Investor (RQFII) quota in 2014 which provided access to the onshore RMB bond market and expanded our investible universe. Through these years, we have developed a few China bond funds with different investment objectives that aim to meet the different needs of the investors.
The Chinese fixed income markets have been gaining traction in recent times, behind China’s phenomenal economic growth and unprecedented technological advancement over the past decade. This impressive evolution of China’s bond market, as it ascends to the world’s second-largest bond market1 , has expanded the scope of investment opportunities for investors—offering attractive yields compared to other developed markets2 , lower correlations to the broader market and greater liquidity. Over the years, consolidated efforts from Chinese regulators have increased accessibility of its onshore bond market to foreign investors. While foreign ownership is growing, it is still below levels seen in other bond markets, indicating a large potential for growth and further inflows.
The inclusion of renminbi as the third largest reserve currency in the International Monetary Fund Special Drawing Rights (SDR) basket3 is also helping the case of RMB bonds. Since inclusion, countries have increased their holdings of RMB assets, usually in the form of RMB bonds, as part of their national reserves. With more investors using and holding the currency, the need for an avenue to obtain excess returns over deposit returns has grown.
The opening of the China Interbank Bond Market (CIBM) to foreign investors has led to index issuers including China RMB Bonds into traditional global bond indices and global emerging market bond indices. This has resulted in large inflows into the asset class.
1Source: Morningstar (2021). https://www.morningstar.co.uk/uk/news/217180/chinas-bond-market-a-quick-primer.aspx
2Source: International Capital Market Association, National Association of Financial Market Institutional Investors (2021). https://www.icmagroup.org/assets/documents/About-ICMA/APAC/NAFMII-and-ICMA-Investing-in-Chinas-Interbank-Bond-Market-Handbook-September-2021-230921.pdf
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