CCB International Asset Management, part of China Construction Bank International in Hong Kong, has launched a renminbi fixed income fund, the first sub-fund of its RMB funds series.

RMB investment products will be one of the firm's main focuses in the future, says Alfred Lo, deputy managing director of CCBI AM, which follows several other firms in launching RMB debt funds, such as Haitong International, Income Partners, Schroders and UBS.

For the time being, the new fund will invest primarily in pure CNH debt (Hong Kong-issued RMB instruments) and will not include synthetic bonds in its portfolio. It will not invest in any structured deposits or products and does not intend to enter into any securities lending or share repurchase transactions.

Further down the line, the fund may also invest in RMB-denominated fixed- or floating-rate debt instruments issued on the mainland, depending on Chinese regulators’ approval.  

Since RMB deposits in Hong Kong are growing at a faster pace than CNH bond issuance, the quantity of offshore RMB income instruments available is limited. The sub-fund may hold some portion of assets in  RMB deposit, says CCBI AM, which was set up at the start of 2004.

The company also notes that, for the time being, there may not be an active secondary market for offshore RMB income instruments and the bid-offer spread of the price of RMB income instruments may be large.

That said, Lo expresses his confidence in being able to build a well-diversified portfolio of CNH bonds. “We have already established good relationships with major market players [sponsors for issuers] in both the primary and secondary CNH markets, which means our fund will have good access to new CNH bond issuance and secondary market trading opportunities.”

“CCB’s strong network of corporate clients [will enable us] to identify investment opportunities in the event these corporates would like to issue [new CNH bonds]”, he says, adding the bank has built strong debt capital markets capability and aims to become a major player in the CNH IPO market.

“All these factors translate into better opportunities for our fund to get access to CNH investment [instruments],” says Lo.

The imbalance of supply and demand in the CNH market has resulted in a low yield from CNH bonds. But Lo believes the yield of the overall market is on an improving trend. “We’ve noticed that the new issuance of CNH bonds in the marketplace has lately come from a more diversified group of companies from different industries," he says. "These issuers offer longer tenor and higher yield.”

The fund is distributed by CCB Asia, CCB International Securities, Bank of East Asia, Fubon Bank (Hong Kong) and Sun Hung Kai Investment Services, where investors can subscribe until March 25.