HSBC's RMB bond fund attracting non-RMB investors

Further evidence that renminbi-denominated investments have caught Hong Kong retail investors’ imagination came this week as HSBC opened its RMB bond fund to the mass market.

Launched on January 28 last year through private placement, the fund has swelled in size over the past year to Rmb3.2 billion ($508 million) as at January 31, making it the largest such product authorised by Hong Kong’s Securities and Futures Commission.

The HSBC bond fund is available in three currency classes: renminbi, Hong Kong dollars and US dollars. It is now being offered at HSBC branches in the city, with a minimum investment amount of Rmb10,000, HK$10,000 or US$1,000.

But Edmund Chong, HSBC Global Asset Management’s head of sales for wholesale business in Hong Kong, notes that more than 70% of the fund’s AUM is accounted for by the HK dollar and US dollar classes.

In other words, the majority of investors are not RMB deposit holders and are treating the fund purely as an investment tool.

It provides a point of differentiation for HSBC’s RMB bond fund, for example in relation to the expanding universe of renminbi-denominated qualified foreign institutional investor (RQFII) products launched by the Hong Kong arms of Chinese asset managers.

“RQFII funds are targeted at investors who want to go back to bond markets in mainland China, while our fund primarily invests in the offshore RMB bond market,” Chong notes. “The interest rate environments of the onshore and offshore bond markets are very different.”

Chong suggests that HSBC wanted to open its fund to the general Hong Kong public rather than limiting it to private placement on account of evident investor appetite and the growing size and sophistication of the offshore RMB bond market.

Hong Kong was home to 84 offshore RMB bond issues last year worth a total of $13.9 billion, compared with 17 worth $5.4 billion in 2010, finds data provider Dealogic. It noted that last year there were 77 separate offshore RMB bond issuers, compared with 16 in 2010 – nearly a five-fold increase in just a year.

“RMB investments are increasingly becoming an important part of the portfolios of Hong Kong investors,” says Bonnie Lam, head of Asia-Pacific wholesale business for HSBC Global Asset Management. “As retail investors become more informed about the offshore RMB bond market, we are delighted to offer this product to a wider group of investors.”

HSBC will also be eager to increase the number of RMB deposit holders investing into the fund. Chong stresses that the fund’s client base has been stable and that after a year of operation it continues to appeal to HK dollar and US dollar investors.

While Hong Kong investors hold more than 80% of the fund presently, the product is also available to accredited investors in Singapore and through a fund of funds structure in Japan.

On a more general note, Cecilia Chan, the firm’s chief investment officer for Asia-Pacific fixed income, says she expects offshore RMB bond issuance to remain strong this year, leading to greater choice for investors in terms of credit quality and issuers.

“While we believe [strong issuance] is a positive step towards a more well-developed market, it also means that credit selection will become more challenging in generating value to portfolios,” she states.