Dim Sum Bonds: The Offshore Renminbi (RMB)-Denominated Bonds

CHAPTER 4

Investors

In previous chapters, we suggested that early dim sum bond investors were interested in the renminbi (RMB) appreciation instead of the low yield in dim sum bonds. They did not even mind that many of the dim sum bonds were unrated and without much bond protection. As the dim sum bond market continues to grow, the demand for dim sum bonds increases from investors seeking to gain from China's economic growth as an alternative to uncertainties posed by developed markets, as we discussed in previous chapters. As RMB appreciation is expected to subside, investors are more concerned about the RMB's value, and issuers' creditworthiness need to be addressed to sustain the market's long-term growth. Investors have started to push the issuers to adopt ratings, accept stricter covenants, and increase bond yields.

Generally, investors are concerned about the risk and return trade-off of alternative assets in a global market. Thus, we analyze various aspects of risk and return on dim sum bonds so that readers can get a better feel for the analysis required for this “new” asset class. In this chapter, we provide the investor perspective on dim sum bonds by analyzing the mix of investors and their motivation and risk preference for these dim sum bonds.

To understand the investor perspective, we first identify the type of investors—are they retail or institutional investors outside the mainland who have access to RMB funds? Or are they investors who wish to participate in the ...