Chinese assets warm, not hot for Western investors

Yield hunger

China should be able to make the most of the worldwide hunt for yield, and its dim sum bond market has had a bumper first half.

Total new issuance - mainly but not exclusively from Chinese borrowers - of 358.6 billion yuan ($57.7 billion) this year is already close to the 2013 full-year total, according to Thomson Reuters data.

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International investors don't need a quota to invest in this market, unlike the onshore market.

"It's a good easy first step for foreign investors," said Gregory Suen, investment director with HSBC Asset Management in Hong Kong.

Research by David Spegel, head of emerging markets sovereign and credit strategy at BNP Paribas, showed dim sum made up the bulk of this year's international emerging market debt issuance denominated in local currency.

China's decision this year to widen its yuan trading band, so adding more two-way trade into the market, has also indicated greater commitment to market forces.

But it has unnerved investors seeking a carry trade play on yuan appreciation - the currency has only recently started to reverse this year's falling trend.

In addition, looser monetary policy has cut the appeal for some investors, with dim sum yields of 4.4 percent below the average for emerging market local currency debt.

"Given financial repression in China, and low to negative real yields ... we do not have a positive view on Chinese bonds at the moment," said Bryan Carter, lead portfolio manager for emerging debt at Acadian Asset Management in New York.

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