[Talk] Practice translation: Dimsum bonds
Original taken from:
http://news.cnyes.com/content/20111118/KE0EK9EH2D33J.shtml
[this is a translation]
Global volatility results in 4% loss on RMB-denominated bonds in October; 90%
of investors under water
European soverign bonds are at risk of default, causing market volatility
that the formerly hot Dimsum Bonds (i.e. RMB-denominated offshore bonds) were
not immune to. Some bond traders have pointed out that out of all Dimsum
bonds issued in 1H11, 90% of them are "under water," and some have dropped
as much as 6% from their peak in that timeframe. Banking professionals
believe that dimsum bond prices have yet to bottom out, and only if the
Eurobond crisis worsens and the yield of RMB-denominated bonds trends up,
should retail investors enter the market with a view towards holding for the
long term.
HK's Mingpo reported Bank of China (Hong Kong) (ticker: 2388-HK) statistics
as showing that the offshore RMB-denominated bond index fell from 100 at the
beginning of the year to a trough of 93.9, but has since rebounded slightly
to 96.2, still 6.7 points lower than the index's June peak of 102.9, for a
YTD decline of 3.8%. ICBC's Asia Funds manager Ms. Hu Wanming pointed out
that dimsum bonds lack a [robust] secondary market, contributing to its sharp
decline, but that its related indices still outperformed the Hang Sen index
by about 16 percentage points over the same period.
Since most institutions purchase dimsum bonds for trading purposes, its price
reflects its ROI potential. Retail investors holding dimsum bonds usually are
long-term investors, and would be able to recover their capital plus interest
at bond maturity, without loss of capital; the only loss is the opportunity
to earn a higher ROR elsewhere.
[Translator's note: Bullshit. If the issuing company goes bankrupt investors
end up holding wallpaper.]
The recent drop in dimsum bond prices can be attributed to the following: 1)
a price decline in offshore RMB (CNH) causing it to appear discounted to
onshore RMB (CNY); 2) investors are less expectant of a rise in the RMB owing
to weakness in China's exports, and thus dimsum bonds appear less attractive;
3) the Eurobond crisis is increasing global investment risks to increase.
Standard Chartered issued a report yesterday lowering its forecast of the RMB
uptrend from 1%/Quarter to 0.6%/Quarter, mainly because a slowdown in
inflation and decrease in DFI from onshore foreign companies will result in
decreasing upward force on the RMB. Standard Chartered estimates that by EoY
the RMB will rise to 6.32/USD, and by EoY2012 to 6.12/USD, for a 2012 RMB hike
of 3.1%. The previous 2012 estimate was 3.9%.
Mr. Lee Junjie, head bond trader of the Bank of Communications (HK) said, "of
all dimsum bonds bought in 1H11, 90% of them have lost money." Since the
price of a bond is inversely related to its yield, he also mentioned that he
does not believe the rising yields of dimsum bonds will offset the declines
in prices.
Mr. Chen Jingmu, the International Executive VP and Treasurer of China Citic
Bank, agrees with that assessment. "if [dimsum bonds] are revalued at
market price now they'll all likely lose about 8-10% in value." As to the
question of whether it's the right time for investors to enter the market,
Mr. Chen pointed out that since capital flows remain tight and visibilities
remain unclear, "the market will remain volatile, and [dimsum bond prices]
certainly have not hit bottom at this time." Mr. Lee, on the otehr hand, takes
the view that long-term investors may consider entering the market now.
With expectations of a rebound in price weakening, the market is looking
towards a "normalization" of yields of dimsum bonds. The face yield of a
MOF-issued RMB bond is 0.6%, while the market yield is at 1.5%. Since the
beginning of last year the issuance of dimsum bonds have increased rapidly,
and coupled with a lack of outlets for RMB-denominated deposits, the result
is that in 1H11 banks or corporate dimsum bonds carry a face yield of as low
as 2-3%, depending on the quality of the issuing firm.
Mr. Lee believes that the yield of such bonds need to increase by another
1.5-1.75 percentage points to attract investors.
[Again, discussions welcome, but in English please]
--
'Cause it's a bittersweet symphony, this life
Trying to make ends meet, You're a slave to money then you die
-Bittersweet Symphony, The Verve
--
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