While the opening of China’s A-share market to foreign investors and the
launch of the Shanghai-Hong Kong Stock Connect (Stock Connect) have been
dominating the news, China’s onshore bond market is also becoming
increasingly accessible, creating new opportunities for foreign
investors to generate potential income and diversify their fixed income
portfolios, according to Fran
Rodilosso, Senior Investment Officer for Market Vectors fixed income
ETFs.
“Currently with real interest rates in China still at attractive levels
and decelerating growth, the Chinese government appears to have both
room and incentive to help foster lower rates. We saw that happen last
week, when the People’s Bank of China (PBOC) cut the one-year lending
and deposit rates by 0.40 and 0.25 basis points, respectively.” While
China has taken other measures to add liquidity to its markets at
various stages, as pointed out by Rodilosso, these have been the first
rate cuts since 2012.
“The rate cuts are the latest measures aimed at engineering a ‘soft
landing’, as China’s growth decelerates from astronomical levels. The
government will likely follow with other measures, including lowering
reserve requirements for banks. The hope for policy makers is that it
filters through to final demand and provides some spark for the more
precarious sectors of the economy, such as housing. Generally this move
is credit positive,” Rodilosso said.
“A secondary effect is that the market may anticipate further rate cuts
in the future, perhaps in 2015, which may keep downward pressure on at
least the front end of the curve and be generally positive for fixed
income. As one may expect, the currency weakened initially on this news
though,” the Market Vectors’ Senior Investment Officer added.
Rodilosso noted that China continues to represent a significant portion
of global economic growth, and that while its domestic capital markets
have been evolving in a way to help fund that growth, access for foreign
investors has historically been limited. Now, in the equity market, that
access is being enhanced, albeit gradually, as with the launch of the
Stock Connect program last week.
“Access to China’s bond markets, however, remains more challenging,
which is a reason why Market Vectors launched an ETF that taps into the
country’s onshore fixed income market through the Renminbi Qualified
Foreign Institutional Investor (RQFII) program which is currently the
only available direct route,” Rodilosso said.
Market
Vectors® ChinaAMC China Bond ETF (NYSE Arca: CBON), is the
first U.S.-listed ETF designed to provide investors with direct access
to China’s onshore bond market. The Fund seeks to invest in all major
segments of the Chinese fixed income markets, including sovereigns,
policy banks, and highly-rated corporate bonds.
Mr. Rodilosso has over 20 years of experience trading and managing risk
in fixed income investment strategies, including more than 17 years
covering emerging markets. In addition to CBON, the Market Vectors ETFs
under his watch are Investment
Grade Floating Rate ETF (NYSE Arca: FLTR®), Treasury-Hedged
High Yield Bond ETF (NYSE Arca: THHY®), Emerging
Markets Aggregate Bond ETF (NYSE Arca: EMAG®), Emerging
Markets High Yield Bond ETF (NYSE Arca: HYEM®), Emerging
Markets Local Currency Bond ETF (NYSE Arca: EMLC®), Fallen
Angel High Yield Bond ETF (NYSE Arca: ANGL®),
and International
High Yield Bond ETF (NYSE Arca: IHY®). As of October 31, 2014, the
total assets for these ETFs amounted to approximately $1.7 billion.
Please note that the information herein represents the opinion of the
portfolio manager and these opinions may change at any time and from
time to time. Not intended to be a forecast of future events, a
guarantee of future results or investment advice. Current market
conditions may not continue. Information contained herein has been
obtained from sources believed to be reliable, but not guaranteed. ©2014
Van Eck Global.
About Market Vectors ETFs
Market Vectors exchange-traded products have been offered since 2006 and
span many asset classes, including equities, fixed income (municipal and
international bonds) and currency markets. The Market Vectors family is
one of the largest providers of ETFs in the U.S. and worldwide.
Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955,
Van Eck Global was among the first U.S. money managers helping investors
achieve greater diversification through global investing. Today, the
firm continues this tradition by offering innovative, actively managed
investment choices in hard assets, emerging markets, precious metals
including gold, and other alternative asset classes. Van Eck Global has
offices around the world and managed approximately $32.3 billion in
investor assets as of September 30, 2014.
Risk Considerations
There are risks involved with investing in ETFs, including possible loss
of money. Shares are not actively managed and are subject to risks
similar to those of stocks, including those regarding short selling and
margin maintenance requirements. Ordinary brokerage commissions apply.
Debt securities carry interest rate and credit risk. Interest rate risk
refers to the risk that bond prices generally fall as interest rates
rise and vice versa. Credit risk is the risk of loss on an investment
due to the deterioration of an issuer's financial health.
An investment in the Market Vectors® ChinaAMC China Bond ETF may be
subject to risks which include, among others, risk of investing in
Chinese securities, particularly Renminbi-denominated (RMB) bonds,
credit risk, interest rate risk, sovereign and quasi-sovereign defaults,
adviser and sub-adviser risk, non-diversification risk, risks associated
with non-investment grade securities and risk of the RQFII regime, all
of which may adversely affect the Fund. Investments in mainland China
may be subject to local customs, duties and rights of ownership, which
might change at any time should policy makers deem them in China’s best
interest. As the Fund invests in securities denominated in Chinese
Renminbi, changes in currency exchange rates may negatively impact the
Fund’s return. Foreign and emerging markets investments are subject to
risks, which include changes in economic and political conditions,
foreign currency fluctuations, changes in foreign regulations, changes
in currency exchange rates, unstable governments, and limited trading
capacity which may make these investments volatile in price or difficult
to trade. The Fund’s assets may be concentrated in a particular sector
and may be subject to more risk than investments in a diverse group of
sectors. For a more complete description of these and other risks,
please refer to the Fund’s prospectus and summary prospectus.
Fund shares are not individually redeemable and will be issued and
redeemed at their NAV only through certain authorized broker-dealers in
large, specified blocks of shares called “creation units” and otherwise
can be bought and sold only through exchange trading. Creation units are
issued and redeemed principally in cash. Shares may trade at a premium
or discount to their NAV in the secondary market.
Diversification does not assure a profit nor protect against loss.
Investing involves substantial risk and high volatility, including
possible loss of principal. Bonds and bond funds, in general, will
decrease in value as interest rates rise. An investor should
consider the investment objective, risks, charges and expenses of the
Fund carefully before investing. To obtain a prospectus and summary
prospectus, which contain this and other information, call 888.MKT.VCTR
or visit marketvectorsetfs.com. Please read the prospectus
and summary
prospectus carefully before investing.
Van Eck Securities Corporation, Distributor
335 Madison
Avenue, New York, NY 10017
Copyright Business Wire 2014