Dim sum bonds are bonds denominated in yuan and issued in Hong Kong; they appeal to investors who desire assets in yuan but cannot invest in domestic Chinese debt. These types of bonds are becoming increasingly popular among offshore investors. This new index will be made up of both corporate and sovereign issuers as well as quasi-government organisations and supra-nationals, and is to be rebalanced on a monthly basis. Chinese state-owned enterprises will be the largest group of dim sum bond issuers, followed by Hong Kong banks and companies. While most of the bonds will come from China and Hong, 32 percent will come from the US, European countries and Singapore.
Merrill Lynch is not the first to create an index of this type. HSBC started a dim sum index last March and Deutsche Bank started one in July. The dim sum bond market is quite young at present but has big potential and is expanding quickly. Phil Galdi, head of Global Bond Index Research at the firm, said, he Dim sum index gives investors a comprehensive picture of the structure, risk characteristics, and performance of this rapidly growing asset class. hile the total capitalisation of the dim sum index is still a long way off compared with the onshore China bond index, its rapid pace of growth attests to the interest it has attracted as foreign investors remain eager to gain access to China bond markets. The largest dim sum bond offering to date will be made by Baosteel Group, a Chinese state-owned steelmaker. The proposed offering is 6.5 billion yuan.
As dim sum bonds are becoming more attractive to investors, their yields are falling. Yields on Deutsche Bank index were at an all time high at 3.95 percent at the start of October and have since fallen to 3.65 percent as of mid November, which shows the increasing levels demand for these particular assets.
Certain types of bonds are not included in the index. Defaulted, Synthetic & Convertible bonds, Certificates of Deposit, Retail Deals and securities issued with warrants are all excluded.
