Reuters: US Dollar Report: CNH Tracker-Talk of dim sum bond market decline overblown?

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CNH Tracker-Talk of dim sum bond market decline overblown? Sep 12th 2013, 03:57 Tweet Share this Email Print Wed Sep 11, 2013 11:57pm EDT By Saikat Chatterjee and Michelle Chen HONG KONG, Sept 12 (Reuters) - As the offshore yuan-denominated bond market tries to shake off a summer lull, some sceptics are predicting a reduced supply of so-called "dim-sum" debt in the coming weeks. Yuan deposits in Hong Kong's banks have stagnated and interest rates have risen, while August was the second lowest month in terms of dim sum bond issuance in nearly two years at 4.88 billion yuan ($798 million). Frustrated with the bite-sized amount of funds raised and relatively shorter tenors, foreign companies are also beating an alternative path to fund their onshore operations. But market watchers say speculation that the dim sum market is heading into deeper funk may be overblown. After a sharp sell-off in the Asian bond markets over the last two months, traders and fund managers say that investment opportunities in the investment-grade space have grown, particularly as most dim sum bonds have a shorter maturity profile compared with some of their Asian counterparts. "As liquidity conditions become tighter in the region, credit quality becomes an even more critical consideration," Theodorus Hadiwidjaja, a credit analyst at JP Morgan, wrote in a note. Notwithstanding a squeeze in onshore money markets in late June, dim sum market issuance has remained robust. Total issuance in the first six months of the year has grown by a fifth compared with the same period a year earlier, according to Thomson Reuters data. Regulators also remain supportive of the market, with the launch of offshore yuan fixings in Hong Kong in June that offer investors another avenue to hedge their fixed-income exposure with the growth of interest rate derivatives. More clarity on the issuance pipeline should emerge in a few weeks after Beijing grants dim sum issuance quotas to Chinese banks and state-owned enterprises. These quotas typically run into billions of yuan for each of these companies. Even on a total returns basis, the dim sum bond market has held up despite the spike in regional and global volatility. Monthly returns according to HSBC indexes have been flat compared to an 8 percent drop for the broader Asian index. While those are encouraging signs for the offshore bond market, the reality is it remains a tiny pool for large multinational companies which are accustomed to raising funds in billions of dollars. That needs to change soon. A survey conducted for more than 120 treasurers and corporate finance by the ASSET magazine and Standard Chartered may provide some clues on how regulators can encourage companies to tap this market. In that survey, only one in 10 respondents had ever issued a dim sum bond and 8 percent were considering an issue in the coming months. Complaints ranged from regulatory delays to remit funds across borders and higher costs. At least, regulators in Hong Kong and Beijing know exactly what to do. WEEK IN REVIEW: * The National Bank of Hungary has signed a three-year bilateral foreign currency swap framework agreement worth 10 billion yuan ($1.63 billion) with the People's Bank of China, the Hungarian central bank (MNB) said in a statement on Monday. * HSBC said it had completed a two-way cross-border yuan lending transaction for a Taiwanese company under a pilot programme China introduced in August, becoming the first foreign bank to conduct such a transaction. * Trading of the Chinese yuan in global foreign exchange markets has more than tripled from three years ago due to the expansion of offshore trade, making it the ninth most-actively traded currency, according to a survey by BIS. * Value Partners Hong Kong Limited, a wholly-owned subsidiary of Value Partners Group said on Wednesday it had received approval to become a Renminbi Qualified Foreign Institutional Investor (RQFII) to invest in China's onshore capital markets. CHART OF THE WEEK: Performance of offshore yuan bonds and Asian debt:RECENT STORIES: CNH Tracker-Competition to intensify as Shanghai tussles for offshore yuan business Shanghai noses ahead in China's free trade zone race Shanghai Free Trade Zone draft could be released this week-report More stories about the CNH market Daily onshore yuan reports Daily China money market reports Offshore yuan rate Onshore yuan rate Offshore yuan dealt Onshore yuan on CFETS THOMSON REUTERS SPEED GUIDES Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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