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| Top Bond Sales |
| Centaline Wealth Management Limited |
| How does the company help clients to build a portfolio via direct bond investments? |
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Even though China’s economy consistently grew at a high single-digit pace in recent years, the performance of the equity market lagged behind. With high financing costs eroding the returns of an equity investor, being a debtor in China may sometimes bring about better returns than a shareholder. As China banks are restricted by a high required reserve ratio (RRR), resulting in an insufficient bank financing system, a lot of civilian-run enterprises have no choice but to issue high yield debt to raise funds in domestic market or abroad. With an increased supply of corporate bonds offered in the market, general investors with ample capital can now directly invest in bonds, which provide not just higher returns than bank savings, but also at a lower risk when compared to equities. We believe this trend will be sustainable in the coming few years.
Thus, with a steady appreciation of the yuan against the HKD pushing up potential returns on dim-sum bonds, an increase in demand and supply may also reduce the volatility of bonds, benefitting bond investors. As part of our value-added services, we aim to provide sufficient information to help our clients make wise decisions, and to encourage them to allocate their wealth in different assets. |
| Share with us some of the business strategies that allow the company to achieve new heights. |
| As Hong Kong investors are generally overweight in equities, we usually have to remind our clients that adding fixed income assets to their portfolio effectively reduces the volatility. In order to have sufficient funds to fulfill redemption requests, bond funds may be forced to sell bonds even when their price is low. This problem will not happen during direct bond investments. As some of the enterprises in mainland China possess strong cash flow and high credit quality, such direct bond investments is comparable to bank savings. |
| The bond market went through a rough patch in 2013, how optimistic are you on bonds in 2014 given current market conditions? |
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Effective interest rate in China is likely to continue rising in 2014, and hence the returns for short term corporate bonds will be more attractive than long term bonds. Investors can wait for the interbank lending market to tighten in March and June due to quarterly or semi-annual account closing, in order to buy corporate bonds at more attractive prices. Hence, the investment value of Chinese corporate bond remains high.
After the default case of Chaori Solar Energy Science & Technology Co, the performance of high grade bonds and high yield bond may diverge. High grade bonds may perform better. However, the risks for bonds issued by financial institutions and real estate developers are relatively higher. |
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