The Exchange Square in Central, Hong Kong is seen in this undated photo. (EDMOND TANG / CHINA DAILY)
The Chinese mainland is in a rare state of being “dual bullish” on stock and bond markets, Bank of China (Hong Kong) says, presenting great investment opportunities in mainland equity and bond markets.
ShenHua, chief executive, BOCHK Asset Management, told a press conference on Thursday that the slowing down of the United States’ federal funds rate increases is positive for global equity and bond markets. Bolstered by steady growth in the mainland economy, both its stock and bond markets are in good shape but given the increase of market risk appetite, he said equities had a better outlook than bonds.
In the first half of this year the best performer among major Chinese equity and bond markets was the MSCI China Index, which had a return of 25.8 percent, followed by the Hang Seng index with 19.5 percent, according to figures from Bloomberg and BOCHK.
To cash in on the rosy prospects, the asset management company will launch a BOCHK AII Weather China Income Fund next Monday. The asset allocation ratio between Chinese equities and bonds will start at 7 to 3 and be subject to review in line with changing markets. The fund aims to pay a monthly dividend and the expected dividend yield is about 4 percent.
Mainland stocks listed in Hong Kong will comprise 66 percent of the fund while 27 percent will be allocated to offshore US dollar bonds. BOCHK said its research indicated the correlation between Chinese equity and bond markets is almost zero; the diverse allocation could spread risks effectively.
The asset manager is going long on offshore US dollar bonds, saying the yield return is higher than dim sum bonds and onshore yuan bonds. In the first half of this year, return of Chinese US bonds - bonds issued by institutional issuers of the mainland, Hong Kong, Macau and Taiwan region - registered a return of 3.3 percent, that for offshore yuan bonds is 2.2 percent, the asset manager noted.
In stock markets, the manager is considering industries with high entry barriers, such as companies with patents and licenses and those less sensitive to the economic cycle.
This is the first BOCHK fund that will be traded through Bond Connect. Ben Yuen Cheuk-bun, chief investment officer of BOCHK Asset Management, said compared with the traditional ways, the new scheme is simpler, without quota limitation and more cost-efficient.
Foreign institutional investors had to buy into domestic bond markets through the Qualified Foreign Institutional Investor (QFII), RMB Qualified Foreign Institutional Investor (RQFII) and China Interbank Bond Market (CIBM) before bond connect was launched last month. The bank said the cost of buying bonds through the new scheme is about 1 basis point lower than through CIBM.