Event
According to media reports [1], the first batch of cross-market government bond ETFs in the industry have been approved recently.
has 8 first batch of products, including: Fuguo China Bond 7-10-year policy financial bond ETF, GF China Bond Agricultural Development Bank Bond ETF, China Merchants China Securities Policy Financial Bond 3-5 Year ETF, China Construction Bank 7-10 Year Policy Financial Bond ETF, Bose China Bond 0-3 Year China Development Bank Bond ETF, Cathay China Bond 1-3 Year Policy Financial Bond ETF, Huaan China Bond 1-5 Year China Development Bank Bond ETF, Ping An China Development Bank Bond 0-3 Year China Development Bank Bond ETF.
From the perspective of redemption method, these ETFs adopt cash redemption method. From the perspective of term, these products cover different term varieties of 0-3 years, 1-3 years, 1-5 years, 3-5 years, and 7-10 years. From the perspective of investment targets, this batch of ETFs is a cross-market ETF, and the target is a policy-based financial bond in the interbank bond market.
is compiled according to Wind data. In addition to the above 8 approved products, there are still 13 government bond ETFs being applied for. The varieties not only cover the China Debt Index, but also the Shangqing Index and the CSI Index . The term covers not only 1-3 years, 0-5 years, 1-5 years, 5-10 years, 7-10 years, but also 5-year varieties with a constant duration.
Comments
1. The first batch of cross-market bond ETFs are approved, which may mean that the development of bond ETFs is about to enter a period of rapid development.
Bond ETF, i.e., a trading open-end index fund whose subject matter is bond , is also known as bond exchange-traded fund . It is listed on the exchange and can be redeemed in the primary market and traded in the secondary market. Overseas, bond ETFs are one of the mainstream ETF products, with the advantages of low investment threshold, convenient secondary market circulation, diversified investment, low investment management costs, and automatic position adjustment. In China, exchange bond ETFs are small in scale, slow in development, and have low popularity. Although my country's bond ETFs have begun to be issued since 2013, as of now, there are only 13 bond ETFs listed on exchanges, with a total scale of only 23 billion yuan. Bond ETFs are still small in scale and have developed slowly. We believe that it is related to the fact that the targets linked to bond ETFs were previously limited to the exchange market, while my country's bond market is still dominated by the interbank bond market. Judging from the existing 13 bond ETF products, the largest ETF has reached 16.7 billion yuan, and its target is interbank bonds; the remaining 12 targets are limited to exchange bonds, and the overall scale is limited. In 2019, the regulator issued the "Notice on Doing a Good Job in Innovation Pilot Work for Open Bond Index Securities Investment Funds", which clearly states that it is planned to launch bond index public funds with cross-market bond varieties as investment targets, which can be listed on exchanges or transferred in interbank market agreements. This has brought the dawn of development of bond ETFs. Recently, the first batch of eight cross-market bond ETFs have been approved, which may mean that the development of bond ETFs may soon enter a stage of rapid development.
2. Cross-market breakthroughs, the first and second-level mechanisms will help the interconnection of exchanges and interbank bond markets.
The meaning of cross-market is mainly reflected in: tracking the underlying bond index components can include bonds between exchanges and banks at the same time. From the perspective of buying and selling methods, investors can either handle first-level subscription/redemption through the agency brokerage in cash or physical form, or they can also conduct second-level purchase/sell in the exchange market through any securities company seat with brokerage business qualification and exchange membership qualification. Since there are first- and second-level buying and selling shares, the arbitrage power can narrow the price difference between the price of the ETF share and the underlying bond index, making the price of the bond ETF closer to the bond index. Since the underlying bonds include interbank bonds and exchange bonds, when fund is bought in a basket, you can choose the target bonds to buy according to the price situation, or when investors subscribe in physical form, they can choose the appropriate bonds from the two markets to subscribe for ETF shares, thereby promoting the consistency of bond prices in the two markets (for cross-market redemption and trading, both exchanges have relevant regulations), thereby promoting the interconnection of the two markets.However, my country still lacks the participation of authorized participants (APs). Referring to overseas experience, APs often hold a large number of target coupons, and the price of ETFs can be maintained at the fair value of and while improving market liquidity. If my country can further introduce cross-market AP participation in the future, we expect to promote the interconnection and development of the two cities to a greater extent.
3. This year, the sharp fluctuations in the commodity and equity markets have led to a high demand for low-risk bond funds. We expect this batch of low-risk government bond ETF funds may also usher in better market demand.
Since the beginning of this year, due to the large fluctuations in the equity market and commodity markets, various fund issuances have generally declined. Only the low-risk bond index fund has expanded rapidly - for example, the low-risk interbank certificate of deposit index funds issued since April are sought after by the market, and fund products with a scale of 10 billion yuan have frequently appeared; the short-term ETF products have also seen rapid expansion, from 6.5 billion yuan at the end of last year to 16.6 billion yuan (as of July 13). From the perspective of risk-return characteristics, the risk-return characteristics of short-term financing index, interbank certificates of deposit index, and policy financial bond index are close. Therefore, we expect government bond ETFs with similar risk-return characteristics are expected to also obtain better market demand.
4. The expansion of bond ETFs is expected to attract more individual investors to enter the bond market.
my country's interbank bond market has a high investment threshold, which not only has high requirements for investor access qualifications, but also the participation amount often starts at 10 million yuan, with a high starting point, so the share of individual investors is low. Through bond ETF investment, its secondary market circulation is convenient. If investors of ordinary bond index funds subscribe and redeem over the market, it often takes T+3 or longer to redeem the redemption. ETF can be listed and traded, and funds can be sold as soon as possible on the same day, with better liquidity and can be used as a cash-like alternative product. Therefore, investment through bond ETFs can lower the investment threshold, improve liquidity, and enhance its attractiveness to individual investors, and to a certain extent alleviate the long-term pain points of the lack of individual investors in the bond market. In the past year, the investment funds for individual investors to participate in bond ETFs have also increased rapidly. At the end of 2021, the total amount of bond ETFs held by individual investors was 1.7 billion yuan, an increase of nearly 1 billion yuan from 700 million yuan at the end of 2020. The proportion of individual investors' holdings also increased from less than 4% in 2020 to 7%. From overseas experience, investment consultants are often important holders of bond ETFs, and the allocation needs of individual investors behind them reflect the advantages of bond ETFs. Compared with many investment products, especially direct investment in bonds, bond ETFs have the characteristics of low investment threshold, good liquidity in the secondary market, diversified investment, and no need to consider too much individual bond research, etc., and are more suitable for individual investors to allocate. Previously, domestic individual investors were able to choose a high-yield and low-risk financial management with high returns and low-risk characteristics as a low-risk investment product. On the other hand, the long-term prosperity of the real estate market also provided a very attractive investment choice with high returns and low-risk investment options. In the future, we believe that as the attractiveness of these two low-risk investment varieties gradually declines - financial management gradually transforms into net value, volatility increases and returns decline; the return rate of the real estate market gradually decreases, the relative attractiveness of bonds in low-risk assets is expected to increase. Bond ETFs can better help individual investors enter the bond market.
5. With the opening of my country's bond market to the outside world, we believe that overseas investors are expected to further promote the development of bond ETFs.
As an overseas investor with global allocation, it often focuses on major asset allocation, has little understanding of the local market, has high cost of building a local team or outsourced investment, and even lacks trading channels for OTCh in the bond market, so it naturally has a strong investment demand for bond ETFs. Among the bond ETF investors in the United States, Europe, Singapore and other markets, overseas institutions are one of the important holders.However, my country's bond market accounts for a relatively low proportion of global investors' allocation. In the future, with the continued advancement of my country's bond market opening up to the outside world, the attractiveness of my country's bond market continues to remain. We believe that the relevant investment needs of overseas investors are expected to gradually promote the further development of domestic bond ETFs.
risk
policy implementation is less than expected.
Figure 1: Some have been approved and applied for China Government Financial Bond ETF Fund
Source: Wind, CICC Research Department
Note: The pink part is the approved fund according to the China Fund News Agency. As of July 13, 2022
Chart 2: Relevant regulations on the subscription and redemption of cross-market bond ETFs
Source: Shanghai Stock Exchange, Shenzhen Stock Exchange, CICC Research Department
Chart 3: Short-term ETF scale
Source: Wind, CICC Research Department Note: Data as of July 13, 2022
Chart 4: Historical performance of similar risk-return characteristics
Source: Wind, CICC Research Department
Chart 5: The holding scale of the top ten domestic bond ETFs
Source: Wind, CICC Research Department; Note: Data as of the end of 2021
Chart 6: The proportion of the holding scale of the top ten domestic bond ETFs
Source: Wind, CICC Research Department; Note: Data as of the end of 2021
Chart 7: The proportion of individual holdings in the bond ETF market has increased
Source: Wind, CICC Research Department
Chart 8: The amount of individual holdings in the bond ETF market has increased significantly compared with the previous year
Source: Wind, CICC Research Department
Chart 9: Domestic bond ETF holder structure
Source: Wind, CICC Research Department; Note: Data as of the end of 2021
Chart 10: Domestic bond ETF holder structure
Source: Wind, CICC Research Department; Note: Data as of the end of 2021
[1] https://www.chnfund.com/article/AR2022071121030864640692
Article Source
This article is excerpted from: "The first batch of cross-market bond ETFs have been approved, and bond ETFs may enter a period of rapid development"
Wei Lulu SAC Practice Certificate No.: S0080519080001 SFC CE Ref: BOM881
Chen Jianheng SAC Practice Certificate No.: S0080511030011 SFC CE Ref: BBM220
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