Bank of China and FTSE partner to develop offshore RMB bond indices

May 1st, 2013 | By | Category: ETF and Index News

Bank of China (Hong Kong) and FTSE Group have announced a partnership to develop a new suite of indices designed to measure the performance of Renminbi (RMB)-denominated bonds issued in offshore (i.e. outside of Mainland China) jurisdictions, referred to colloquially as ‘dim sum’ bonds.

Bank of China and FTSE partner to develop offshore RMB bond indices; dim sum ETFs likely to follow

The indices aim to provide an industry standard benchmark to meet increasing international demand for access to RMB-linked fixed income products, such as exchange-traded funds (ETFs).

The new indices, which will be known as the FTSE-BOCHK Offshore RMB Bond Index Series, will combine Bank of China’s strong position in the offshore RMB business and source of pricing data with FTSE’s global brand and index expertise.

The indices will be structured to help global investors to better capture the opportunities in the offshore RMB fixed income market and to provide an industry standard benchmark to meet increasing international demand for access to RMB-linked fixed income products, such as exchange-traded funds (ETFs).

The series will be developed out of Bank of China’s existing offshore RMB index line-up, which includes the BOCHK Offshore RMB Chinese Sovereign Bond Index, the BOCHK Offshore RMB Investment Grade Bond Index and the BOCHK Offshore RMB 1- 3 Years Central Government Bond Index,  with FTSE taking responsibility for calculation and management.

Thus far, dim sum bonds have predominately been issued in Hong Kong. However, Chinese authorities have gradually relaxed the regulation surrounding issuance and have actively sought to open up new offshore centres. In November 2012, the first dim sum bond was issued in London, by China Construction Bank. So while Hong Kong remains the largest market by far for these kinds of bonds, issuance looks set to hasten in other offshore locations; Singapore, Taipei and New York, in addition to London, look like potential hot spots. The establishment of new indices to track the performance of all these issues is a natural evolution of this development

Mark Makepeace, Chief Executive, FTSE Group, said: “We are delighted to be working with Bank of China (Hong Kong) to develop the offshore RMB bond indices offering. There is increasing demand for access to RMB fixed income products and FTSE’s global brand, combined with BOCHK’s track record in RMB indices, will enable us to accelerate the development of a global investor offering in this area.”

He added: “FTSE has been proactively expanding its global fixed income operations, most recently through a new joint venture with TMX Datalinx. The fixed income market represents a significant growth opportunity for FTSE and we will continue to work with our partners to provide innovative index solutions to global investors.”

David Wong, Deputy Chief Executive of Bank of China (HK), said: “BOCHK takes great pleasure in joining hands with FTSE Group to develop a new offshore RMB bond index series. Given the increasing significance of RMB in the world economy, we see growing demand for RMB fixed income products. In this regard, the introduction of the new indices will offer those investors with an array of quality benchmarks. It will also help facilitate the development of offshore RMB bond markets worldwide.”

The new indices will not be without competition. In fact, a number of rival indices exist including the BofA Merrill Lynch Dim Sum Index, the S&P-DB ORBIT (Offshore Renminbi Bond Index Tracker) Index and the Citigroup Dim Sum (Offshore CNY) Bond Index, as well as a scattering of boutique indices such as the AlphaShares China Yuan Bond Index and the Market Vectors Renminbi Bond Index.

The latter three of these indices are already linked to ETFs listed on the NYSE Arca, namely the PowerShares Chinese Yuan Dim Sum Bond Portfolio ETF (DSUM), the Guggenheim Yuan Bond ETF (RMB), and the Market Vectors Renminbi Bond ETF (CHLC). It also seems eminently likely that the S&P DB index will eventually find its way in to a Deutsche Asset & Wealth Management db X-trackers ETF.

The FTSE name, which has a particularly powerful presence in the UK, could give the new indices a head start when it comes to selecting an index for a London Stock Exchange-listed dim sum ETF launch. Similarly, the Bank of China (HK) brand would appeal to Hong Kong investors. Indeed, it would not come as a surprise to see an ETF launched on the Hong Kong exchange, perhaps sponsored by Bank of China (HK) itself, by the close of the year. Watch this space.

Tags: , , , , , , , , , ,

Leave a Comment



More in ETF and Index News
Heather Fischer, vice president, ETF and mutual fund platforms, Charles Schwab
ETF allocations up 70% over five years, finds Charles Schwab

The importance of ETFs within an average investor's portfolio has increased substantially over the past five years, according to the 7th annual survey...

Twelve new ETFs listed on London Stock Exchange in August 2017
Twelve new ETFs listed on London Stock Exchange in August 2017

Twelve new ETFs were listed on London Stock Exchange in August 2017, bringing the number of new listings year-to-date to 89. ETF issuers...

Close