Guinness Atkinson Asset Management, advisor to the Guinness Atkinson funds, has launched the Renminbi Yuan & Bond Fund (GARBX), the first traditional open-end mutual fund to invest directly in bonds denominated in the Chinese currency, Renminbi (RMB).
The fund will be managed by Edmund Harriss, the company’s veteran China fund manager who has also managed the Guinness Atkinson China & Hong Kong Fund (ICHKX) since 1998. The June 2011 issue of Asia Brief published by Guinness Atkinson provides a detailed overview of the Renminbi bond market.
“We are pleased to bring our long-time China investing experience to this exciting new asset class, providing investors with an additional way to participate in the world’s second largest economy during this new stage of its development,” says Jim Atkinson, CEO of Guinness Atkinson Asset Management. “As China begins to promote an internationally tradable currency, this fund should appeal to emerging market bond fund investors looking to diversify their currency exposure while seeking a way to participate in China’s bond market."
The fund’s investment strategy combines evaluation of global macroeconomic conditions with in-house credit analysis based on study of company fundamentals. The fund will employ proprietary modelling screens to support the portfolio management team’s credit analysis. The strategy’s active approach and structure as a mutual fund provides the portfolio management team with a high level of flexibility in executing buy and sell decisions in changing market conditions.
China’s credit and currency markets have seen gradual but dramatic changes over the last several years. A series of administrative changes in Chinese policy from 2009 has enabled and encouraged companies to settle trade in Renminbi (RMB) and not US Dollars. Since the latest amendment to these changes, which expanded companies abilities to trade in RMB in July 2010, RMB deposits have grown at an astonishing pace. Many companies now prefer to settle trade in RMB, which is on a rising trend against the dollar.
These agreements have created a framework which, driven by the sheer weight of China’s global economic presence, resulted in a new functioning foreign exchange market in RMB, in less than nine months. The growing pool of RMB deposits together with the permissions granted in the July 2010 agreement have now opened the way for companies to tap this pool for debt funding. Several multinational corporations, including Caterpillar Inc. (CAT), McDonald’s Corporation (MCD) and Unilever plc (UL) have issued bonds in this emerging market.
“The rapid growth in these debt instruments issued by corporations, both Chinese and overseas, has surprised most onlookers, making it now not only possible but practical for US investors to buy them,” says Edmund Harriss, portfolio manager of the fund. “Our belief is that the RMB may continue to appreciate against the US dollar based on the strength of China’s trade position and on the relative strength of its national indebtedness compared to the US and Europe. The demand for these instruments is clear as new issuance has been healthy, and the variety and quantity of issues has continued to grow from both Asia and the West.”