Bloomberg reported that Chinese policymakers, led by the Ministry of Finance and the National Development and Reform Commission, are planning to launch a new round of stimulus, involving a potential issuance of at least RMB 1 trillion of additional China government bonds and an upward revision of fiscal budget deficit. Some investors may be worried about its negative impact on the bond market with the potential jump in supply. In this article, our Partner & Co-CIO David Lai discusses why we agree with most analysts that it would not create any lasting impact even if the plan materializes. In fact, China remains disciplined in fiscal policy whilst the overall monetary stance stays accommodative. China government bonds have outperformed almost all other sovereign bonds this year due to the rate cuts and low inflation expectations. The long end of China yield curve in particular benefited the most year-to-date, with the yields on 10-year, 30-year, and 50-year having fallen 13.8bps, 18.0bps, and 20.2bps respectively already.

Global markets have been subject to higher volatility so far in 2022 amid escalating inflation and recession risks. The US rate hike cycle has added further pressure to the dollar return of most foreign-currency-denominated assets due to the strengthening dollar. In this article, we describe the genesis behind the recent addition of USD hedged unit class to our Premia China Treasury and Policy Bank Bond Long Duration ETF (9177.HK), which is the first among peers to offer USD hedging feature in Asia. For investors that are mindful of mark to market risk amid continued US interest rate hikes, as well asset owners with long duration allocation needs, the Premia China Treasury and Policy Bank Bond Long Duration ETF is a unique tool that provides access to the long duration Chinese government and policy bank bonds with strong A1 sovereign bond rating, competitive yield of over 3%, stable yield volatility and now with the USD hedged unit class, additional optionality to capture the steady yield of China sovereign bonds whilst minimizing exchange rate risks for RMB.