HSBCGlobal Asset Management (USA) Inc, a wing of
HSBC Holdings plc
), has launched a Chinese Renminbi (RMB) fixed income mutual fund
for the American investors. Earlier, HSBC had issued the first
Chinese Renminbi bonds in London in April. The HSBC Global Asset
Management's Hong Kong-based Asian Fixed Income team will manage
Investment in the Chinese currency bonds will provide the
American investors an opportunity to be a part of China's
developing bond market and benefit from the potential appreciation
of its currency. The aim of the fund is to maximize returns, driven
by capital appreciation and income through investing in RMB
exposing fixed income securities.
The offshore RMB bond market has picked up momentum since 2010
due to the commencement of the RMB internationalization process in
2009 by the Chinese government. It is a three-stage process in
which, Renminbi will transform into an investment as well as a
global reserve currency from a trading currency.
The process involves the trade settlements in RMB to generate
liquidity pools comprising of various currencies. This liquidity
will be deployed in savings and variety of investments that will
make RMB more attractive, given the convincing investment scenario
for RMB bond markets driven by competitive yields and appreciation
potential of the currency. Gradually, the RMB bond market will
become one of the strongest.
Investing in RMB fixed bonds will not only maximize the American
investors' returns, but also will provide them with the
geographical risk-diversification as well as expose them to the
fast evolving Chinese economy and currency.
In November 2011, JP Morgan Asset Management, a subsidiary of
JPMorganChase & Co.
), had been granted permission by the Chinese government to create
a $1 billion RMB fund under the Qualified Foreign Limited Partner
program (QFLP). The deal will allow JPMorgan to become the largest
overseas manager of the renminbi bonds
We expect HSBC to gain significantly from RMB bonds. As the
investors have been losing confidence in the American as well as
European markets, they will prefer to invest in the emerging Asian
economies. China is an economic powerhouse and its bonds are set to
be very successful. Though the world economy is reeling under the
Euro-zone crisis, it has had only a limited impact on Asia.
Further, Chinese currency has maintained itself against the U.S
As the demand for the RMB denominated assets continue to grow,
HSBC will benefit from the surfeit of opportunities that will come
up by developing the offshore Chinese bond market. The banking
giant expects the bond market to reach the 1-trillion mark in the
next three years.
Currently, HSBC retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.
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