Nikko and ICBC launch China onshore government bond ETF in Singapore

Nov 27th, 2020 | By | Category: Fixed Income

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Nikko Asset Management has partnered with ICBC Asset Management, the investment arm of the state-owned Industrial and Commercial Bank of China (ICBC), to launch an ETF in Singapore providing exposure to government bonds issued in mainland China.

Nikko and ICBC launch China onshore government bond ETF in Singapore

China is the second-largest bond market in the world but foreign ownership remains low.

The NikkoAM-ICBCSG China Bond ETF has listed on Singapore Exchange and is available to trade in Chinese renminbi (ZHY SP), US dollars (ZHD SP), and Singapore dollars (ZHS SP).

The fund costs 0.30% and comes to market with around S$250 million (approx. $190m) in assets under management following a successful pre-launch fundraise.

The ETF is the first globally to track the ChinaBond-ICBC 1-10 Year Treasury and Policy Bank Bond Index, developed by ChinaBond Pricing Center (CBPC), a subsidiary of China Central Depository and Clearing (CCDC).

The index covers bonds traded on the China Interbank Bond Market that have been issued by the Chinese government or major policy banks.

Policy banks include the Agricultural Development Bank of China, China Development Bank, and Export-Import Bank of China. These are state-owned entities responsible for financing economic and trade development as well as state-invested projects. They have the same ‘A+’ international credit rating as the Chinese government.

Eligible bonds must have a remaining time to maturity between one and ten years. Constituents are weighted by market value outstanding.

As of the end of September, the index consisted of 216 bonds with roughly 60% of its total market value in policy bank bonds and the remaining 40% allocated to the Chinese government. Its average yield to maturity is 3.23% and its effective duration is 4.10 years.

The fund launches just two months after the first Chinese government bond ETF debuted in Singapore courtesy of Hong Kong-based CSOP Asset Management, also in partnership with ICBC. The ICBC CSOP FTSE Chinese Government Bond Index ETF tracks the FTSE Chinese Government Bond Index and is available with US dollar (CYB SP) and Singapore dollar (CYC SP) trading lines. The fund is slightly cheaper at 0.25% and has already grown to over $1.1 billion AUM, highlighting the strong demand for access to this segment.

Too big to ignore

China is the second-largest and fastest-growing bond market in the world; however, despite renminbi having been officially designated a reserve currency by the IMF since 2016, foreign participation is disproportionately low. This is expected to change, though, driven by better access channels and greater alignment of China’s bond market with international standards, while demand is expected to also receive a boost from the inclusion of China in major global indices.

Eleanor Seet, President and Head of Asia ex-Japan at Nikko AM, commented, “The launch of the NikkoAM-ICBCSG China Bond ETF plays to the combined strengths of Nikko AM and ICBC in ETFs and China’s fixed income market.  As a global citizen with Asian DNA focused on bringing progressive solutions to institutional and retail investors, we see the importance of providing investors access and participation in China bonds, one of the largest, rapidly growing asset classes. This ETF offers investors easy, cost-effective participation in a rising tide that is simply too big to ignore.”

Loh Boon Chye, CEO of Singapore Exchange, added, “We are pleased to welcome the listing of NikkoAM-ICBCSG China Bond ETF which meets the increasing investor demand for easy and efficient access to China’s bond market. Interest for RMB bonds and assets is expected to continue to rise in tandem with the recovery of China’s economy and the opening up of the country’s financial markets. We are also delighted that our collaboration with ICBC and CCDC has resulted in tangible outcomes and we look forward to more initiatives to support the internationalization of China and the RMB.”

Wang Jingwu, Senior Executive Vice President of ICBC, said, “Leveraging on its network of more than 70 countries and regions, and its advanced integrated operating systems for both domestic and overseas businesses, ICBC will continue to contribute to the two-way financial connectivity by developing new services and helping more overseas entities to enjoy the benefits of China’s rapid economic development.”

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