“Clients are saying that they are still comfortable with the [China fixed income] asset class, just not with the currency. That’s why we see a lot of interest in US dollar- or Hong Kong dollar-denominated Chinese fixed income,” he told FSA.
Last year, the offshore RMB (CNH) weakened 6% against the US dollar.
HFT IM, the mainland mutual fund joint venture of Haitong Securities and BNP Paribas Investment Partners, set up its Hong Kong office in 2010. This offshore unit is responsible for managing money for offshore investors, which can be international or Chinese clients who have assets outside of mainland China, Vervoorn said.
The joint venture also helps BNPP IP manage some China-focused products, such as the Flexifund Bond RMB fund.
“We have not seen [new capital] going into China last year, not from Europe, and not from the US,” he said. The reasons are continuing concerns about the RMB, volatility of the markets, as well as the rising defaults in onshore bonds and capital repatriation rules for foreign investments, he noted.
He believes a decision by MSCI to include China A-shares on its global indices, expected in June, will act as a catalyst for foreign investors to take greater exposure to China.
“The reasons why A-shares have not been included in the MSCI Index are basically the reasons why international investors are worried,” Vervoorn said.
JV product launch?
He declined to say wehether the joint venture had plans to launch products in overseas markets. Although he said offshore fixed income and multi-asset strategy are two areas to look at in terms of foreign investor interest.
“Multi-asset can be a confusing term. The principal driver for it is diversification, and that is absolutely the theme [for Asian investors]. In China, they see quite a volatile equity market and a bit of trouble on the fixed income side.
“It goes hand in hand with [investors looking into] an absolute return approach rather than relative returns”, as the benchmark might be too volatile to follow.
HFT’s Hong Kong team would share the parent group’s research team in Shanghai, while the portfolio managers are based in the SAR, he said.
For its part, BNP IP will help in distributing HFT HK’s products globally, Vervoorn noted. He believes Haitong Securities’ overseas presence also helps. Its Hong Kong-listed overseas arm Haitong International Securities Group already has offices in Asia, the US and Europe.
HFT has three mutual funds selling in the SAR, all fixed income-focused. Below is the performance starting April 2014 (when the HFT China RMB Money Market Fund was first incepted) to 8 March 2017, against the category average, according to FE.
All fund NAVs have been converted to US dollars. Note that funds in this chart may be denominated in currencies other than the US dollar.