Deutsche Bank AG says the total value of so-called dim sum bonds outstanding may reach 200 billion yuan ($31 billion) by the end of the year with companies outside China driving the market’s “explosive” growth.
“International issuers will lead growth in the future, issuing in yuan and swapping back into their home currency,” Vishal Goenka, the Frankfurt-based lender’s head of local-currency credit trading for Asia, said at a media briefing in Singapore today. Issuers may include companies from countries such as Indonesia and India, where interest rates are higher.
Sales of dim sum bonds total 54.2 billion yuan this year, compared with 35.7 billion yuan in all of 2010, with about one-third sold by state-backed Chinese enterprises or the government, according to data compiled by Bloomberg. Companies including Volkswagen AG and Unilever NV also entered the market this year, lured by average yields of 2.33 percent on the debt.
Yields in the dim sum bond market will remain flat or even fall this year because the yuan deposit base in Hong Kong “is far outstripping asset creation for the time being” as investors seek to profit from currency appreciation, Goenka said.
Yuan deposits in Hong Kong tripled in the past two quarters to a record 451 billion yuan, official data show. China’s currency has risen 27 percent against the dollar since the end of 2000, making it the best performer among the so-called BRIC group of emerging economies.
“There will be yuan-denominated initial public offerings in Hong Kong in the future,” he said. “But for the rest of the year, we see credit being the hotspot.”
The 2.9 percent rate for one-year government debt in China compares with about 8.2 percent on similar-maturity sovereign bonds in India and 5.5 percent in Indonesia, Bloomberg data show.
Deutsche Bank, Germany’s biggest lender, lies in fifth place in underwriter rankings for dim sum bonds with a 5.5 percent market share this year, compared with sixth position and 3 percent in 2010, Bloomberg data show. HSBC Holdings Plc tops the rankings, followed by Royal Bank of Scotland Group Plc, while Bank of China Ltd. has dropped to sixth place from first.
The investor base is becoming increasingly international and will make up between 40 percent and 50 percent of the market as asset managers from Latin America, the U.S. and U.K. “who do not have an Asia presence” buy the debt, Goenka said, without providing a time frame.
The secondary market is also expanding and Deutsche Bank now trades about 3 billion yuan of dim sum bonds a month, a 15-fold increase from the start of the year, Goenka said.