SHANGHAI, Jan 9 (Reuters) - China has given the green light to the launch of the country’s first exchange-traded bond funds, as Beijing moves to boost China’s debt market by introducing low-cost, liquid products to a wider pool of investors.
Guotai Asset Management Co, which is partly owned by Italian insurer Assicurazioni Generali SpA, and Shenzhen-based Bosera Funds have received regulatory approval to launch exchange-traded funds (ETFs) for bonds, the China Securities Regulatory Commission said late on Tuesday.
Guotai will launch an ETF tracking an index of five-year treasuries, while Bosera will launch an ETF tracking an index of corporate bonds.
Chinese investors typically trade bonds through the country’s interbank market, which is closed to retail investors.
Volumes are thin for the few bonds now trading on Chinese stock exchanges.
Bond ETFs, which passively track a basket of debt instruments and can be traded like stocks on exchanges, are more liquid and easier for retail investors to understand than the exchange-listed bonds. Management fees also tend to be lower for ETFs than for actively managed bond funds.
The government has said that bond futures and other derivatives will also be rolled out soon to offer vehicles for hedging, without giving a specific timetable.
China has been encouraging companies to issue bonds to wean the economy from its reliance on bank lending and to alleviate pressure on its equities markets, where more than 800 companies are waiting to get listed.
Easier retail investor access to bond products would also give middle-class Chinese savers more opportunities to diversify their investment portfolios. Recent surveys have shown that ordinary investors are increasingly disappointed with returns on their investments in domestic equities, while time deposits often produce negative real returns due to inflation.
In response, many Chinese investors have turned to speculating on real estate, which has pushed up housing costs and threatens to undermine social instability.
Others have poured funds into high yielding but relatively opaque wealth-management products (WMPs). Most WMPs are also invested in bonds, but some are backed by rickety or bizarre collateral that have included empty property developments, concert ticket sales and ham.
Relatively transparent, high yielding and liquid bond ETFs offer a lower-risk alternative.
But analysts warn that ETFs are unlikely to give a significant boost to China’s struggling fund management industry overall.
Other Chinese fund houses, including Harvest Fund Management Co and E Fund Management Co, have also applied to launch bond ETFs, but such products may compete with actively managed funds, which tend to generate higher fees.
Assets under management in Chinese bond funds stood at more than $26 billion in the third quarter of last year, making up 8 percent of the total for Chinese funds, according to data from Lipper, a Thomson Reuters company that tracks the mutual fund industry. Money market funds accounted for an additional 18 percent.
Bond funds’ net inflows exceeded $8 billion in the first three quarters of 2012, compared with $1.6 billion for equity funds.
Globally, there are more than 4,500 bond ETFs, worth more than $1.7 trillion, according to China Merchant Securities. (Editing by Edmund Klamann)