CNH Tracker-Foreign investors pursue yuan products to bet on China recovery
By Michelle Chen HONG KONG, Dec 6 (Reuters) - Foreign investors are gaining more confidence in yuan assets and flocking to offshore yuan market to pursue exchange-traded funds (ETFs) and dim sum bonds, banking on a recovery in China's economy and a turnaround in its ailing stock markets. New ETFs denominated in the yuan, which were initially quiet after their debuts on the Hong Kong Stock Exchange, saw daily turnover rise over the week, especially in their Hong Kong dollar trading counters. Their newly launched warrant products were also actively traded. Take CSOP FTSE China A50 ETF as an example. The 23 warrants of the ETF posted turnover of HK$1 billion ($129 million) on their first trading day on Tuesday, becoming the second most active warrant next to that of the benchmark Hang Seng Index. The robust warrant trading also drove more funds to CSOP's yuan-denominated ETF, which saw volume amounted to HK$325 million, ranking it third among all ETFs in Hong Kong and the first among the four yuan ETFs in the market. A warrant is a financial tool that enables its holder to buy the underlying stock of the issuing company at a fixed exercise price before it expires. "Some investors are betting on a turnaround in the A-share market as it has fallen quite a lot and they believe the room for a further drop is limited," Ben Kwong, chief operating officer at securities house KGI Asia, said. In his view, interest in the nascent yuan ETF market will pick up further, especially after more issuers enter the market with ETF and warrant products, given improved sentiment toward China's economy. The onshore A-share market tumbled to a four-year low in November, and some analysts say it has hit the bottom, expecting it to benefit from improved liquidity and economic reforms next year. CICC expects the A-share market to rebound 10-15 percent in the first quarter next year, with a bigger bounce likely if monetary policy is relaxed further. With the yuan hitting record highs after a first-half lull, the offshore yuan bond market has also regained traction since November and the monthly issuance volume rose to about 15 billion yuan ($2.4 billion) from less than 10 billion yuan in the previous three months, backed by both Chinese and foreign issuers. Chinese real estate firm Beijing Capital Land sold a three-year dim sum bond priced at 7.6 percent last month. The bond drew in huge demand from investors and was nine times oversubscribed, which is rare in this market. "Global funds especially those from private banks are starving for higher yields, and you can see how much they took in Beijing Capital Land's deal," said a debt capital market banker, referring to the 44 percent private banks contributed in the 2 billion yuan bond. The Bank of China dim sum bond index, which evaluates the overall performance of offshore yuan bonds, has rebounded to 102.36 from a historic low of 93.99 seen in October 2011. The year-to-date return is 6.5 percent. The pace of activity in China's vast manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence that the economy is reviving after seven quarters of slowing growth. China's economic growth may quicken to 8.2 percent in 2013 from an expected 7.7 percent this year in response to official growth-promoting polices, but downside risk remains from global uncertainties, the Chinese Academy of Social Sciences (CASS) said on Wednesday. WEEK IN REVIEW: * A cross-border repo scheme aimed at promoting the internationalisation of the yuan has been used for the first time. UBS London and HSBC's Hong Kong branch conducted the first renminbi tri-party repo using Euroclear Bank and the Hong Kong Monetary Authority as collateral management agents, respectively. * Daily turnover in Hong Kong's yuan settlement system, which serves the global renminbi market, has surged as much as two-thirds since June to reach 250 billion yuan per day, as growing numbers of international banks and companies use the Chinese currency. * China Cinda Asset Management priced its 2 billion yuan three-year dim sum bond at 4 percent, according to a term sheet obtained by Reuters on Thursday. The bond, issued through Bitronic Ltd, an indirect wholly owned subsidiary of Cinda, will be listed in Hong Kong. * Yuan deposits in Taiwan banks' offshore business units (OBU) increased by 7.4 percent month-on-month to reach 19.3 billion yuan in October and yuan cross-border trade settlement rose by 2.2 percent to 5.27 billion yuan, according to data released by Taiwan central bank. * China and South Korea agreed to use their $59 billion currency swap agreement formed late last year to boost the use of the yuan and won in bilateral trade, Seoul's finance ministry and central bank said on Tuesday. Central banks of the two countries will begin lending trading firms yuan and won through banks from later this month. * London performed strongly in October in Standard Chartered's Renminbi Globalization Index, which is used to evaluate the overall offshore yuan business worldwide, as yuan trade settlements through London increased their contribution to the index, while such payments through Hong Kong were flat. CHART OF THE WEEK: Bank of China Hong Kong dim sum bond index: link.reuters.com/suc54t LEAGUE TABLES Book runner: Proceeds (RMB mln): # of issues: 1. HSBC 39,860.8 124 2. Standard 19,138.5 74 Chartered Bank 3. BNP Paribas SA 15,811.3 57 4. Bank of China 10,321.3 15 5. Deutsche Bank 6,988.5 27 YTD synthetic RMB bond issuance: Book runner: Proceeds (RMB mln): # of issues: 1. Deutsche Bank 4,479.2 3 2. Citi 2,912.5 2 3. Bank of China 2,312.5 1 4. Bank of America 2,312.5 1 Merrill Lynch 5. HSBC 1,248.5 2 * Thomson Reuters data as of Dec. 6. RECENT STORIES: CNH Tracker-China hastening reforms as offshore yuan languishes More stories about the CNH market Daily onshore yuan reports Daily China money market reports Offshore yuan rate Onshore yuan rate Offshore yuan dealt Onshore yuan on CFETS Offshore yuan bonds THOMSON REUTERS SPEED GUIDES ($1 = 7.7500 Hong Kong dollars) ($1 = 6.2253 Chinese yuan) (Editing by Kim Coghill)
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