The head of Hai Tong Asset Management in Hong Kong, which debuted the financial centre’s first renminbi mutual fund, says he expects an offshore renminbi convertible bond to emerge in Hong Kong and believes Beijing will approve a ‘mini-QFII’. The Hong Kong asset management arm of China's leading securities brokerage, Haitong Securities, is launching the first renminbi mutual fund in Hong Kong that invests in renminbi-denominated fixed or floating debt instruments issued offshore. The main offshore market where renminbi debt instruments are issued is Hong Kong. As of today about 30 billion renminbi ($4.43 billion) of bonds are outstanding there, issued mainly by the government and mainland incorporated banks. In addition, total renminbi deposits in Hong Kong stood at 84.7 billion renminbi as of May, data from the Hong Kong Monetary Authority shows. Daniel Li, managing director of Hai Tong Asset Management (HK), says the open-ended Haitong Global RMB fixed-income fund launched in Hong Kong on Monday requires a minimum investment of 10,000 renminbi. Subscription is open until the end of August, but it might close earlier if demand bolsters total subscriptions to 5 billion renminbi. "The 5 renminbi billion upper limit is set in view of the current limited pool of offshore renminbi liquidity in Hong Kong," Li says. That could be a problem for the fund, as it will "hold a significant portion of assets in bank deposits if there are not sufficient renminbi income instruments for the fund to invest in", Hai Tong stated in a press release. "This might adversely affect the fund's return and performance." A non-prinicipal guarantee fund, it seeks long-term capital growth in renminbi terms through investing in fixed or floating rate debt instruments issued or distributed outside China. It could also invest in renminbi money-market instruments such as certificates of deposits, negotiated term deposits with banks, commercial papers, short-term bills and notes. "With the [signing of agreements] between the People's Bank of China and the Hong Kong Monetary Authority [that seek to expand the scope of offshore renminbi banking business and products], we're optimistic that the scope of offshore renminbi credit products will expand. From government bonds, financial bonds which are of higher credit quality... going forward I can foresee the next development for offshore renminbi issuance to extend to convertible bonds," says Li. Hai Tong's launch of the world's first offshore renminbi open-ended fund has come at a time when top officials from China's financial watchdogs, including the People's Bank of China and the country's currency regulator, the State Administration of Foreign Exchange (Safe), have reportedly said they are now considering allowing Hong Kong-based Chinese securities brokerages and asset management firms to invest offshore renminbi liquidity back into China's capital markets, such as the A-share market, through a ‘mini-qualified foreign institutional investor' (mini-QFII) scheme. Under China's closed capital account, Beijing has been making use of the QFII scheme to, in a controlled and limited manner, allow foreign investors to invest in China equities, fixed income and, more recently, listed futures. A total of $17.72 billion in QFII quota had been approved by the end of June this year, data from Safe shows. While QFII, which saw the first quota granted to investment bank UBS in 2003, mainly accepts applications from leading global real-money investors such as sovereign wealth funds, pensions and university endowment funds, and multinational investment banks, the mini-QFII has been contemplated mainly as a way to allow Hong Kong-based Chinese security brokerages to channel the growing pool of renminbi liquidity in Hong Kong as this liquidity pool expands in size due to Beijing's policy endorsement to grow the special administration region as China's biggest offshore currency centre. Li says he is optimistic the regulators would give the green light to a mini-QFII scheme shortly, adding that its new fund would make investment into China onshore debt securities once approval is given. In China, Haitong Securities has a 51%-owned joint venture fund management venture with Belgian financial group Fortis, called Fortis-Haitong Investment Management, based in Shanghai. ...
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