Asset managers to benefit from China high-yield moves, says Moody’s
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Moves by the China Securities Regulatory Commission (CSRC) to open up the country’s high-yield bond market will be beneficial for international asset managers, according to Moody’s Investors Service.
Last week, the CSRC backed new rules that will permit China’s Rmb 2 trillion (£202.2 billion) mutual fund industry to invest in nation’s newly-created high-yield corporate bond market.
Soo Shin-Kobberstad, senior analyst at Moody’s, says: “The approval is credit positive for international asset managers that have local presence in China, expertise in high-yield corporate bonds, and strong distribution capabilities.”
Shin-Kobberstad highlights Invesco and Franklin Resources as two of the potential beneficiaries of the move, as they have joint ventures with Chinese asset managers.
As well as opening up a new investment opportunity, access to the Chinese high-yield bond market will allow fund managers to enter into a higher-margin business, as fees on high-yield bonds are typically higher, that will strengthen their profit margins and revenue diversification.
“The opening of the high-yield corporate bond market to mutual funds is the latest development in a series of regulatory changes by Chinese authorities to liberalise and develop the country’s domestic capital markets,” Shin-Kobberstad notes.
The analyst adds that products such as Franklin Templeton’s Surging Income Bond fund, Invesco’s Great Wall Sustaining Income Bond fund, and Deutsche Bank’s Harvest Bond Open-Ended fund and Harvest Credit Bond fund are poised to enter the newly-opened market.
Furthermore, he anticipates an increase in interest from foreign investors as the Chinese high-yield market matures to offer better price transparency and risk-return assessments.
“We expect international asset management companies that have built a local market presence over the years through joint ventures and affiliates to benefit from the increasing liberalisation of the fund industry and the growing availability of capital markets instrument,” Shin-Kobberstad concludes.
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