Daily Management Review

Fidelity International opens a bond fund in China


Fidelity International opened its first fund for wealthy investors in mainland China. This is a key event for foreign fund managers who want to expand their presence in the complex Chinese market, reports Reuters.

Fidelity International’s first private fund in China, which primarily invests in the mainland China's $ 9 trillion bond market, will be available to Chinese institutional investors and private investors with large capital.

"Undoubtedly, the yuan bond markets are the future of Asian bond markets, and they will play an important role in the global financial markets for many years", said Freddy Wong, the fund’s manager.

This year, Fidelity International became the first global asset management fund that managed to launch investment products in China through a 100% subsidiary in China, as Beijing continues to liberalize the country’s capital markets.

Fidelity International’s Shanghai division is registered with the Asset Management Association of China (AMAC). This step will contribute to creation of investment products for Chinese institutional and individual investors with large capital on the mainland, the company said in January.

Previously, foreign asset managers who wanted to distribute investment products in China had to act through joint ventures involving Chinese companies. Then, however, Beijing has gradually loosened the rules.

More and more foreign financial institutions, including Aberdeen Asset Management, hedge fund Bridgewater Associates and Vanguard, are creating enterprises with 100% foreign capital in the country. However, they still need the AMAC’s registration to launch products in mainland China.

Earlier in February, Financials Times reported that foreigners buying bonds in mainland China can now hedge their currency risks, as China has taken yet another measure to attract international investment to its actively developing debt markets.

Hedging instruments, including foreign exchange forwards and currency swaps, were approved, as the Chinese authorities are seeking to attract new investors to the interbank bond market, which is already the third largest in the world. Now, the market is offering bonds worth about 64 trillion yuan ($ 9.3 trillion), which is 32% more than in 2015.

Last year, Beijing surprised banks and investors by opening access to the market under a scheme in which funds can invest under the auspices of approved banks without applying directly.

At the end of 2016, foreigners accounted for 1.3% of the interbank market, or bonds for 870 billion yuan. The interbank bond market of China (CIBM) covers more than 90% of all traded bonds.

The problem for foreign investors was the cost of hedging and the possibility of it as such. Previously, investors were largely limited to hedging at the Hong Kong offshore renminbi market, which is much less liquid than on the mainland. 

source: reuters.com

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