BlackRock ETF helps drive jump in Europe-based China bond fund flows
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Huge inflows to a BlackRock China bond exchange traded fund have helped sustain a 25 per cent rise in Europe-domiciled China fund assets under management in the first seven months of the year.
The investment manager’s iShares China CNY Bond UCITS ETF was the best-selling China fund over the period, attracting net flows of €4.5bn. The second most successful fund was the BlackRock GF China Bond fund, which garnered €3.6bn.
Between January and July, China equity and bond funds had combined inflows of nearly €37bn, helping to take assets under management to €155.9bn, according to Morningstar.
Despite the strong growth in the first half of the year, assets under management in the funds dropped by just over €13bn in July, largely as a result of market sell-off.
Net outflows from China equity funds reached €55m in July, but a greater number of Europe-domiciled funds garnered net inflows than those suffering outflows in the month, according to Morningstar data.
Net inflows to renminbi bond onshore funds totalled €1.7bn in the month, bringing inflows to the products over the first seven months of the year to €11.4bn.
Overall inflows to China bond funds, Greater China high-yield bond funds and renminbi bond onshore funds in Europe totalled €16.3bn over the year to the end of July.
Meanwhile, net inflows to China, Greater China and China A-share equity funds to the end of July stood at €19.2bn, Morningstar data for Europe-domiciled funds showed.
Shannon Zheng, senior product specialist at Allianz Global Investors, said China funds had become more popular following the launch of exchange offshore access programmes, which had made it easier for international investors to enter China’s domestic equities market.
“The Stock Connect programme link between China’s mainland markets and the Hong Kong stock exchange [has relaxed] restrictions that historically split the Chinese stock market between shares targeted at local investors and those available to international investors,” Zheng said.
“It has accelerated the inclusion of China A-shares within global benchmarks. As a result, we have seen structural inflows into China equities, especially China A-shares from global investors.”
“Increasingly, more and more investors are also allocating to China equities as a standalone asset class and carving China out from their emerging market allocation,” she added.
Another reason for the growth of interest in China funds was that the country had recovered well from Covid-19 and was expected to have relatively high economic growth, according to Christopher Greiner, data journalist at Morningstar.
“With record-low interest rates, it is not easy to get income for fixed income investors. High-yield bonds and emerging market bonds offer higher yields than many other fixed income products but also at a higher risk,” Greiner said.
“Investing in China can provide potential diversification benefits for investors that desire to build a more resilient portfolio.”
However, Beijing’s recent regulatory crackdown could lead investors to become more careful about investing in China, especially when it came to Hong Kong and US-listed Chinese stocks that were more vulnerable to policy changes, such as tech and education companies, said Greiner.
“The recent dip might have been perceived as a good buying opportunity. But it is very difficult to foresee how bumpy the ride ahead will be,” he added.
*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at igniteseurope.com.