Foreigners Still Stuck with Dim Sum Bonds as China Mulls Bond Expansion
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The government is China is planning ways to create a larger market for corporate bonds, according to reports out of Bloomberg. China's corporate bond market is currently valued at $666 billion, which is small compared to the U.S.'s $7.9 trillion fixed income market. When compared to GDP, China's bond market is just 9 percent versus 50 percent in the U.S.
Officials in Chinese are now taking steps to create a more robust bond market. In early June, Guo Shuqing of the China Securities Regulatory Commission launched a plan to allow small and medium-sized companies to sell debt comparable to speculative-grade bonds.
U.S. investors who want to invest in the Chinese bond market have limited options at present. The most notable is the Dim Sum bond market- named after the Chinese delicacy- which has a mixture of government, agencies, and corporate bonds. The Chinese Yuan Dim Sum ETF (NYSE: DSUM) is the most popular ETF for investing in this market.
But the Dim Sum market is not being used by investors seeking corporate bonds in China. At present, it is serving as a proxy for investors who want exposure to the Chinese yuan.
Although foreign banks can trade in bonds and underwrite them, they mostly remain shutout of underwriting on the interbank market, which is 20 times larger and closed to individual investors.
Only HSBC Holdings Plc has won approval to underwrite non-financial debt on the interbank bond market, and has yet to lead manage any sales, according to data from Bloomberg. The London-based bank is the top underwriter in of Dim Sum bonds.
HSBC declined to comment on Guo's reforms or potential for expansion for foreigners.
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Officials in Chinese are now taking steps to create a more robust bond market. In early June, Guo Shuqing of the China Securities Regulatory Commission launched a plan to allow small and medium-sized companies to sell debt comparable to speculative-grade bonds.
U.S. investors who want to invest in the Chinese bond market have limited options at present. The most notable is the Dim Sum bond market- named after the Chinese delicacy- which has a mixture of government, agencies, and corporate bonds. The Chinese Yuan Dim Sum ETF (NYSE: DSUM) is the most popular ETF for investing in this market.
But the Dim Sum market is not being used by investors seeking corporate bonds in China. At present, it is serving as a proxy for investors who want exposure to the Chinese yuan.
Although foreign banks can trade in bonds and underwrite them, they mostly remain shutout of underwriting on the interbank market, which is 20 times larger and closed to individual investors.
Only HSBC Holdings Plc has won approval to underwrite non-financial debt on the interbank bond market, and has yet to lead manage any sales, according to data from Bloomberg. The London-based bank is the top underwriter in of Dim Sum bonds.
HSBC declined to comment on Guo's reforms or potential for expansion for foreigners.
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