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AA-rated PM bullish on Dim Sum bond

AA-rated PM bullish on Dim Sum bond

Dim Sum bond holdings have been gradually increasing in the Legg Mason WA Asian Opportunities fund, run by Citywire AA-rated Desmond Soon, and co-managed by Citywire A-rated Chia-Liang Lian.

Named after a popular cuisine in Hong Kong, the bond is denominated in the Chinese yuan but issued outside of China, mainly in Hong Kong.

‘Currently, we buy more offshore bonds, we are actually buying more Dim Sum bond. The bond is actually one of our most favourite sectors this year,’ Western Asset's Soon told Citywire Asia.

There are two reasons why he favours the Dim Sum bond, which occupies the fourth largest position in the Legg Mason WA Asian Opportunities portfolio.

The first reason is he is constructive about the Chinese yuan. The Dim Sum bond market, for example, has been scaled down since August 2015 after the Chinese central bank devaluated its currency in August, in a bid to boost exports and market pricing in the country.

What’s more, in the last two years there has been no public Dim Sum issuance. This is because of the negative medium-to-long-term outlook for the renminbi and expensive price for issuing a Dim Sum bond.

‘If you look at the amount of Dim Sum deposits in Hong Kong, it is going down. Nobody wants Dim Sum, because they think the dollar is better. As a result, when you speculate, you want to short the CNH [offshore renminbi],’ Soon explains.

The second reason is he is satisfied with the bond yields for new issuance that have been recently included into his portfolio.

One example is Bayerische Motoren Werke’s (BMW) Dim Sum bond issuance, which was issued in October. The A1/A+ (Moody’s / S&P) rate bond issuer priced CNH 1 billion ($152 million) three-year Reg S bonds at par to yield 4.25%.

‘We thought it’s pretty good from a developed Asia perspective. In Korea, you get 2.5%, in Singapore you have about 1%. We are actually building up this position, so far it’s going quite well,’ he said.

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