Susan Chan, Blackrock
Blackrock announced today the listing of the iShares China Government Bond ETF and the iShares Short Duration China Policy Bank Bond ETF on the Stock Exchange of Hong Kong (HKEX).
The ETFs track the FTSE Chinese Government Bond Index and the FTSE Chinese Policy Bank Bond 6 Months-3 Years Index respectively.
Onshore China fixed income is among the top two bond markets globally, worth over $19trn, and has grown to 15% of total fixed income securities on issue around the world, according to Blackrock’s data. The amount of Chinese bonds on issue has increased by 624% (or 18% compounded annual growth rate) since 2009.
Chinese government bonds will also join the FTSE Russell World government bond index, or WGBI, over a period of 36 months from end of October 2021.
“By listing in Hong Kong, we are giving transparent and liquid vehicles to access Chinese fixed income in a tax-efficient manner in an attractive major trading hub. We want to offer investors in the region an even more diversified range of ETFs that could not previously be as easily accessed,” said Susan Chan, head of Asia at Blackrock.
Although, the iShares China Government Bond ETF and iShares Short Duration China Policy Bank Bond ETF cater to professional and institutional Investors in the Asia Pacific region, they will also be accessible to all investors in the Hong Kong jurisdiction, Chan told FSA.
They charge a total expense ratio of 18 basis points and 20 basis points respectively, with the option of USD, HKD and RMB trading counters.
Flow Traders is the official market maker, and Blackrock has received “significant support from HSBC and Jane Street,” according to a spokesman for the firm.
Bonds will be bought via bond connect, which allows full access to the China interbank bond market, which is where most of the trading activity for China government bonds and policy bank bonds happen.
The managers will use stratified sampling to build the bond portfolios. “It is not practically possible to buy all the bond issues in the indexes, especially on day one which is the case in running the China bonds ETF as many of the bonds can be dated issuances that may be illiquid and/or expensive to trade,” said the spokesman.
“Our stratified sampling process subdivides the benchmark index according to key risk characteristics such as maturity, key rate duration and liquidity.”
“We believe the Hong Kong ETF market is going to benefit from initiatives such as HKEX waiving trading tariff and settlement fees for local fixed income and money market ETFs, encouraging the growing local demand for fixed income products,” said Chan.
Including the two new ETFs, iShares will have 13 ETFs listed in Hong Kong, and Blackrock “sees more to come”.