Chinese asset manager E Fund Management’s series of recent Taiwan mandate wins have highlighted the island’s institutional demand for mainland exposure.
Despite a summer of A-share and renminbi turmoil, Taiwan asset owners’ demand for onshore bonds has been undiminished in part to a lack of RQFII quotas giving them direct access to the mainland market.
A total of five Taiwanese life insurance companies have handed out Rmb442 million ($13.6 million) in renminbi bond mandates to E Fund Management (Hong Kong) over the past three months.
In all, Cathay Life Insurance, Bank Taiwan Life Insurance, Shin Kong Life Insurance, CTBC Life and Mercuries Life Insurance have bought into E Fund’s renminbi fixed income fund since May, according to Investtw.net, an online platform focusing on unlisted company news.
The Hong Kong arm of Guangzhou-based E Fund, the third-largest Chinese fund house in term of mutual fund assets, confirmed it had received several institutional mandates from Taiwanese life insurers over the past few months but a spokesperson declined to reveal the names due to non-disclosure agreements.
Sydney Tien, executive director of E Fund (HK)’s product and solution team (Taiwan, Japan and Singapore), told AsianInvestor that foreign institutional demand for China onshore bonds rose in the first half of this year for two key reasons – Chinese rate cuts and a relative high bond yield compared to developed countries.
“The People’s Bank of China’s five interest rate reductions and three reserve requirement ratio (RRR) cuts since November last year could benefit high-yield credits in China,” Tien said. Both onshore and offshore Chinese high-yield credits provide a yield of around 5-10%, which is relatively higher than similar credits which provide a yield of 4-6% in the US and Europe.
Despite the PBoC’s currency devaluation in mid-August, Tien said the volatile renminbi exchange rate was relatively stable when compared to other emerging-market currencies, while onshore fixed income provided a higher yield.
While China plans to open up its bond market, it is still closed to many foreigners. “The onshore bond market provides a low correlation to the global bond market, and such allocations are seen as diversifying risk amid a possible hike in US interest rates,” said Tien.
Taiwanese institutions in particular have strong demand for mainland exposure. The island holds savings worth Rmb330 billion renminbi but lacks RQFII (renminbi qualified foreign institutional investor) quotas which would allow institutions to directly invest in onshore equities and bonds.
“The China bond market is huge - Taiwanese institutional clients find it difficult to understand the operational details and credit quality of companies unless the issuers are huge state-owned enterprises,” Tien added.
Both Cathay Life and Shin Kong Life are ranked No 62 and No 99 in AsianInvestor’s Top 300 asset owners, with total AUM of $108 billion and $53 billion respectively.
E Fund’s renminbi fixed-income fund mainly invests in onshore high-yield credits. It was the winner in the Chinese domestic fixed income (onshore) asset class in Asianinvestor’s 2015 Asset Management Awards.