Exchange-traded funds designed to let investors play China’s bond markets, which are mostly closed to foreigners, are facing a slow start amid concerns about mainland issuers’ credit quality, high property prices and the slowing economy.
At more than US$5 trillion, China’s onshore fixed-income markets are outranked only by the US and Japanese markets and offer attractive rates.
But trading volumes for three Chinese bond ETFs launched in late 2014 have dwindled, and the ETFs are drawing assets at a much slower pace than a Chinese equities ETF run by Deutsche Bank, which since a November 2013 launch has attracted more than $1 billion in assets.
Analysts predict foreign fixed-income investment on the mainland will grow as China allows more foreign debt ownership. Investors are wary about China’s shaky bond issuers, high real estate valuations, and slowing economy.
"If they were launched when there was not a global slowdown, from an economic perspective, it might be a different story," said Dave Mazza, funds research chief at State Street Global Advisors.
Over the past 12 months, the Standard & Poor’s China Composite Select Bond Index has gained 8.47 per cent. So far in 2015, the China index is up 1.9 per cent. Total 2015 returns from the new ETFs range from zero to 1 per cent.