The Hong Kong subsidiary of China International Capital Corporation has launched the CICC Bloomberg Barclays China Treasury 1-10 Years ETF on the Hong Kong stock exchange, SEHK.
The fund provides exposure to fixed-rate, renminbi-denominated Treasury bonds with remaining maturities between one and ten years.
The fund is linked to the Bloomberg Barclays China Treasury 1-10 Years Index which reflects the performance of fixed-rate, renminbi-denominated Treasury bonds with remaining maturities between one and ten years.
According to Bloomberg, bonds with maturities of less than ten years currently account for 80% of the total China Treasury universe.
Constituents must have an outstanding face value of at least 5 billion renminbi to be eligible for inclusion. Bonds are weighted by market value in the index.
Chinese government bonds currently account for 73% of overseas investors’ onshore bond exposure; however, foreign ownership of this $2 trillion market stands at only 8%.
The fund seeks to change this by providing a convenient vehicle for foreign investors to access Chinese Treasuries at a time when these bonds are being increasingly accepted into mainstream international indices.
For example, Bloomberg intends to add Chinese government and policy bank bonds in the Bloomberg Barclays Global Aggregate Index from April 2019 pending several planned operational enhancements by the People’s Bank of China and Ministry of Finance.
All constituents of the Bloomberg Barclays China Treasury 1-10 Years Index would be officially included into the flagship index following this move.
According to CICC, the ETF also offers investors benefits including low correlation with major global asset classes and clarified tax exemption.
“It is extremely important that CICC serves international investors’ needs to invest in China government bonds,” said Lin Ning, Managing Director of CICC HK AM. “We hope this ETF becomes a ‘go-to’ product for investors to access the third largest government bond market in the world.”
“As international investors find new ways to access China’s market, Chinese government bonds are a compelling way of diversifying their portfolios and increasing exposure to the world’s fastest-growing bond market,” added Norman Tweeboom, Head of Portfolio & Index Sales for Asia-Pacific at Bloomberg. “CICC is a valuable partner in enabling investors a new way to access China’s market via an easily tradable ETF, underpinned by Bloomberg’s market leading data and analytics.”
The fund is available to trade in Hong Kong dollars (3079 HK) or renminbi (83079 HK) and comes with an expense ratio of 0.50%. Income is distributed to investors on an annual basis.
The new ETF is the second launch in a week for CICC following the listing of the CICC CSI Select 100 ETF. This ‘quantamental’, fundamentals-oriented fund provides exposure to 100 China A-shares from firms that are considered industry front-runners with solid competitive advantages.