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UK fund manager Eurizon SLJ Capital has launched a couple of new funds targeted at the emerging markets bond sector. Its Eurizon SLJ Bond Aggregate RMB fund is going to be investing in the growing Chinese bond market, now valued at $17 trillion.

The new fund will be managed by Stephen Li Jen and Monica Wang and will be investing in debt instruments denominated in Renminbi and traded on the China Interbank Bond Market, or via other regulated markets in China and Hong Kong. The fund will use the Bloomberg Barclays China Treasury Total Return Index as its benchmark.

The opportunity for investors in the China fixed income market

The fund is being launched because Eurizon SLJ Capital believes that the Chinese bond market has now become too big to ignore, and international investors will be starting to get more interested in this emerging asset class. Timing is good as China seems to have managed the impact of the pandemic much better than many other countries and investor interest is now firmly focused on the market.

The Chinese local bond market is considered to be under-owned despite the size of its economy. Foreign investor participation is around 2% of the total bond market. China’s onshore fixed income markets really stand out when measured against the global bonds universe- nominal yields for government debt are over 3% at a time when German bonds are regularly in negative yield territory.

Chinese bonds also offer exposure to long term global trends – e.g. the inclusion of Chinese bonds in global government bond benchmarks.

“With outstanding issuance of around USD 14 trillion, China is now the world’s second largest sovereign bond market. As such, global bond investors simply cannot afford to ignore it,” said Jean-Charles Sambor, Head of Emerging Markets Fixed Income at BNP Paribas.

Eurizon SLJ Capital is also launching an emerging markets bond fund, focusing on bonds issued in local currencies rather than US dollars. This is a strategy that will be investing across a broad range of sectors, credit ratings, maturities and durations. It is a large and potentially much more exciting universe of issuers, but remains higher risk in our view as the overall impact of COVID on EM economies, issuers and corporates remains undefined.

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Local governments and companies are now much more active in the local issuance space, meaning that fund managers have a broader range of bonds to play with.

Eurizon SLJ Local Emerging Markets Debt is going to be managed by Yasmine Ravai, who has been active in the EM sector for 26 years, with the aid of Alan Wilson.

Joint venture with Eurizon Capital

Eurizon SLJ Capital was created in 2016 by the merger of Jen and Yilmaz’ SLJ Macro Partners with Eurizon Capital SGR. Eurizon is the asset management arm of Intesa Sanpaolo Group, one of the fastest growing asset managers in Europe. Jen and Yilmaz retain a 35% equity share in the business.

The firm has been very focused on emerging markets investments. Solutions include investment management of segregated mandates, UCITS funds, bespoke modelling and FX overlay services.

Both funds are available on UK IFA platforms. Private investors should discuss these with their financial adviser.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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