CSOP debuts in Singapore with China onshore government bond ETF

Sep 21st, 2020 | By | Category: Fixed Income

Hong Kong-based CSOP Asset Management has debuted in Singapore with the launch of the city-state’s first ETF tracking government bonds issued in mainland China.

CSOP debuts in Singapore with China onshore government bond ETF

CSOP Asset Management has made its ETF debut in Singapore.

The ICBC CSOP FTSE Chinese Government Bond Index ETF has listed on Singapore Exchange (SGX) and is available in US dollar (CYB SP) and Singapore dollar (CYC SP) trading lines.

The fund has been launched in partnership with ICBC Asset Management, the investment arm of the state-owned Industrial and Commercial Bank of China.

The ETF comes seeded with over $670 million due to successful pre-launch funding that attracted significant interest from institutional investors, highlighting the pent-up demand for access to China’s onshore bond market.

The ETF’s underlying reference is the FTSE Chinese Government Bond Index which provides exposure to fixed-rate Chinese sovereign bonds with at least RMB 20 billion outstanding and a remaining maturity between one and 30 years. Zero-coupon bonds, saving bonds, and special government bonds are not eligible for inclusion. The index is rebalanced on a monthly basis.

The ETF comes with a maximum management fee of 0.30% and makes distributions to investors on a semi-annual basis.

Too big to ignore

China’s onshore bond market is the second-largest in the world; however, foreign ownership of approximately $400bn accounts for just 3% of the country’s total $15 trillion capitalization.

Foreign ownership is poised to expand rapidly, however, driven by better access channels and greater alignment of China’s bond market with international standards. Demand is expected to also receive a boost from the inclusion of China in major global indices.

Index providers JP Morgan and Bloomberg have already begun this process with the latter expected to complete the integration of Chinese sovereign and bank policy bonds to the flagship Bloomberg Barclays Global Aggregate Index in November 2020.

FTSE Russell is expected to announce its decision to include Chinese government bonds within the widely followed FTSE World Government Bond Index later this week, following the index provider’s latest semi-annual review.

Beyond the potential boost from flows linked to these mainstream indices, Chinese government bonds may also appeal to investors searching for enhanced yield without wishing to venture into junk bond territory – the ETF’s underlying index is currently yielding 2.98%. Chinese government bonds can also serve as a portfolio diversifier as yields have historically exhibited a near-zero correlation with US, German, and Japanese counterparts.

Zhou Yi, Chairman of CSOP Asset Management, commented, “We are very glad to bring our first SGX-listed ETF product to global investors. [The ETF] is designed to help capture the investment opportunities brought by the booming China onshore bond market in view of the market discussion of the potential inclusion into the global indices.”

Ding Chen, CEO of CSOP Asset Management, added, “We believe this China-themed fixed income ETF with relatively low cost, easy access, and diversified bond holdings will suit the local investors’ demand of seeking for a relatively stable yield.”

Gu Jian’gang, Chairman of ICBC Wealth Management, said “We are glad to cooperate with leading business partners like CSOP to continuously provide high-quality services to global investors. I hope ICBC CSOP FTSE Chinese Government Bond Index ETF listed on SGX will contribute to the internationalization of RMB and the development of Singapore’s offshore RMB market. China’s financial market is continuously opening and it welcomes global investors. We look forward to a win-win cooperation with all parties. “

Loh Boon Chye, Chief Executive Officer of Singapore Exchange, commented, “We are honored that CSOP Asset Management, a well-known ETF leader in Asia, has picked SGX to be the listing venue of choice for their landmark ETF. SGX provides a multi-asset platform that supports the internationalization of China and investor access to Asia’s largest economy. Global fixed income investors have been turning to Chinese sovereign bonds for added diversification and yields, and this product is a strong addition to our platform. SGX will continue to work with issuers and business partners to develop a multi-asset ETF product shelf that meets the demands of the investment community.”

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