The China Bond Fund aims to get the highest total return possible. The Fund invests at least 70% of its total assets in fixed income transferable securities denominated in Renminbi or other non-Chinese domestic currencies issued by entities that conduct the majority of their business in the PRC through recognized mechanisms such as the Chinese Interbank Bond Market, the on-exchange bond market, the quota system, and/or onshore or offshore issuances, as well as any future developed channels. The Fund is an RQFII Access Fund and a CIBM Fund, and it may invest in the PRC via RQFII Quota and in the CIBM via the Foreign Access Regime, Bond Connect, and/or other ways as permitted by applicable rules from time to time.
The Fund may invest in debt instruments that are exposed to a rating downgrade, either real or imagined. An increase in interest rates may have a negative impact on the Fund’s bond holdings. The Fund may invest in non-investment grade and unrated bonds, which are more likely to default, have higher volatility, and have lower liquidity. The Fund invests in government or government-backed bonds, which may be subject to political, economic, default, or other risks. The Fund may invest in Chinese local government finance vehicles’ urban investment bonds ( “LGFVs”) that are susceptible to the LGFVs’ default risk.
The Fund is subject to the Renminbi Qualified Foreign Institutional Investor (RQFII) limits and requirements “Due to quota limitations and regulatory uncertainty, RQFII”) investments may have a negative impact on the fund’s value. The Fund is exposed to the risks of investing in China’s interbank bond market.
The Fund’s holdings are primarily in the People’s Republic of China (PRC). This could lead to higher volatility than more broadly based investments. Political, fiscal, economic, social, and foreign exchange risks may be associated with the Fund’s investments in emerging markets.
Tax risks, currency risks, securities lending counterparty risks, foreign investment limitations risks, currency control/conversion risks, and currency hedging risks all affect the Fund.
At the discretion of the Board of Directors, Class 6 Shares pay dividends gross of expenditures and/or from capital. Paying dividends before expenses may result in more income available for distribution; however, these shares may effectively pay dividends from capital, which could result in a partial return or withdrawal of an investor’s initial investment or capital gains. On the ex-dividend date, all issued dividends result in an immediate fall in the NAV price of the share class.
Derivatives may be used by the Fund for hedging and investment reasons. However, it will not be widely used for investment objectives. The Fund’s use of derivatives may result in losses.
The Fund’s value is volatile, and it can drop dramatically in a short period of time. It’s possible that you’ll lose a portion of your money.
Investors should not base their investing decisions solely on the contents of this booklet. For more information, including risk concerns, investors should consult the Product Highlights Sheet (for Singapore).
3As of the end of April 2020, Morningstar. Morningstar categorizes Hong Kong Securities and Futures Commission (SFC) licensed funds in Asia Bonds as a peer group. Authorization by the SFC does not imply official endorsement. 11 November 2011 was the first day of operation.
Is it possible to purchase Chinese government bonds?
The scheme was partially launched in January, allowing foreign investors to purchase Chinese bonds; however, southbound trade for mainland investors to purchase offshore bonds has yet to start.
Is it wise to invest in Chinese bonds?
“In fact, Chinese government bonds (CGBs) have recently outperformed some of the other government bonds. While everyone else is facing inflationary pressures, it may be a good opportunity to buy in CGBs if you have no exposure,” Chow added.
Are foreigners allowed to purchase Chinese bonds?
Through the dollar-denominated Qualified Foreign Institutional Investor (QFII) and its yuan-denominated twin, RQFII, foreign institutional investors can gain access to China’s two main bond markets, the exchange bond and interbank markets.
In June, China abolished quotas for QFII and RQFII, allowing qualified foreign institutions to invest in Chinese stocks and bonds without restriction.
Through China Interbank Market (CIBM) Direct, some institutional investors, such as foreign central banks and monetary authorities, as well as sovereign wealth funds, can register for direct access to the interbank market.
Is it possible to purchase foreign government bonds?
You can buy bonds issued by other governments and firms in the same way that you can buy bonds issued by the US government and companies. International bonds are another approach to diversify your portfolio because interest rate movements range from country to country. You risk making decisions based on insufficient or erroneous information since information is generally less dependable and more difficult to obtain.
International and developing market bonds, like Treasuries, are structured similarly to US debt, with interest paid semiannually, whereas European bonds pay interest annually. Buying overseas and developing market bonds (detailed below) carries higher risks than buying US Treasuries, and the cost of buying and selling these bonds is often higher and requires the assistance of a broker.
International bonds subject you to a diverse set of dangers that vary by country. Sovereign risk refers to a country’s unique mix of risks as a whole. Sovereign risk encompasses a country’s political, cultural, environmental, and economic features. Unlike Treasuries, which have virtually no default risk, emerging market default risk is genuine, as the country’s sovereign risk (such as political instability) could lead to the country defaulting on its debt.
Furthermore, investing internationally puts you at risk of currency fluctuations. Simply put, this is the risk that a change in the exchange rate between the currency in which your bond is issued—say, euros—and the US dollar would cause your investment return to grow or decrease. Because an overseas bond trades and pays interest in the local currency, you will need to convert the cash you get into US dollars when you sell your bond or receive interest payments. Your profits grow when a foreign currency is strong compared to the US dollar because your international earnings convert into more US dollars. In contrast, if the foreign currency depreciates against the US dollar, your earnings would decrease since they will be translated into less dollars. Currency risk can have a significant impact. It has the ability to convert a gain in local currency into a loss in US dollars or a loss in local currency into a gain in US dollars.
Interest is paid on some international bonds, which are bought and sold in US dollars. These bonds, known as yankee bonds, are often issued by large international banks and receive investment-grade ratings in most cases. Indeed, credit rating agencies such as Moody’s and Standard & Poor’s, which review and grade domestic bonds, also offer Country Credit Risk Ratings, which can be useful in determining the risk levels associated with international and emerging market government and corporate bonds.
What if China stops purchasing US debt?
If China (or any other country with a trade surplus with the United States) stops buying Treasurys or even starts selling its US FX reserves, its trade surplus would turn into a trade deficit, which no export-oriented economy wants since it will be worse off.
Are Chinese government bonds safe?
‘Higher Quality Growth’ is a phrase used to describe growth that is of higher quality. As the world’s second-largest bond market, Chinese debt serves as a “alternative safe haven” for Tracy Chen, a Philadelphia-based portfolio manager at Brandywine Global who purchased Chinese debt for the first time in 2020.
What is the size of China’s bond market?
The Chinese economy is a behemoth, and its bond market is a rising powerhouse. The Chinese bond market was the world’s second-largest by the end of 2020. Chinese bonds were worth approximately $19 trillion in total, accounting for 15% of the global bond market.
What exactly are Chinese bonds?
The prolonged use of capital controls is incompatible with the goal of achieving reserve currency status in the long run, but we do not see a shift away from a controlled exchange rate in the near future.
Relative Value
Chinese bonds may have a greater yield than equivalent bonds issued in industrialized bond markets, but not when compared to the average emerging market. When compared to the average emerging market, this indicates the comparatively low volatility of both bond prices and currency.
Both the central bank and the State Council, which oversees China’s huge bureaucracy, have expressed support for a more moderate monetary policy. This, we feel, marks the start of a longer period of reduced interest rates, which might be beneficial to bonds.
However, in the medium and long run, China’s growth is anticipated to outstrip that of the United States and Europe, necessitating fundamentally higher Chinese interest rates to combat inflationary pressures. It should be noted, however, that China’s economic and interest rate cycles do not usually follow those of the United States and Europe. This explains why the US and European markets have such poor connection.
Chinese 10-year government bonds will pay out roughly 3.6 percent to investors, while 10-year policy bank bonds will pay out around 4.3 percent.
5 On 10-year sovereign paper issued by governments in developed markets, that’s an appealing yield increase.