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A-shares and RMB bond market outlook


A-shares and RMB bond market outlook

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A-shares and RMB bond market outlook

With Mainland China’s financial market partially open for Hong Kong investors wishing to invest in A-shares and China bonds, a good way of doing this is to take advantage of the QFII (Qualified Foreign Institutional Investors) quota. So let’s have a look at the outlook of A-shares and China bond markets.

Why investing in the China A-shares market1?

The desire to draw more medium-to-long-term capital to its A-shares market is the message China has been sending to overseas investors throughout 20122. What market considerations should be taken into account when investing in China A-shares market?

Manulife Asset Management (Asia)5 believes that the economy will start to pick up in the first half of 2013, and that a number of positive factors may not have fully priced in to the current market:

  1. Required reserve ratio cuts (totalling 150 basis points) since December 2011 and two interest-rate cuts (totalling 56 basis oints) in June and July 2012 respectively to stimulate the economy.
  2. Slower Renminbi (RMB) appreciation, which is positive for manufacturers.
  3. Property prices are stabilizing and hence further tightening measures are not expected.
  4. Green light anticipated for on-hold infrastructure projects.
  5. Softening commodity prices and lower inflation pressures.
  6. Global central banks’ liquidity stimulus.


Attractive valuation below 2008 crisis level

The China A-shares market (CSI 300 index) is trading at the 2012 forecast price-to-earnings of 10.42 times and a price-to-book ratio of 1.54 times is predicted, putting the market valuation back to and probably below the 2008 trough level.

CSI 300 Index price-to-earnings movement:

A-shares and RMB bond market outlook

Table 1: CSI 300 Index Valuation3

Year 2008
(Oct) 4
2009 2010 2011 2012
Price/ Earnings(times) 10.66 19.14 17.06 11.68 10.42 8.95
Price/Book (times) 1.77 3.17 2.54 1.80 1.54 1.36
Dividend Yield(%) 2.32 1.32 1.19 1.72 2.24 2.48







Why investing in the China bond market?

Apart from A-shares, Renminbi (RMB) bonds would be another alternative as an RMB investment product. Manulife Asset Management (Asia)believes that there are three advantageous factors in favour of RMB-bonds investment.

China bonds offer higher yields than developed markets in general

China has large foreign reserves (USD3.2 trillion)and strong economic fundamentals (GDP recorded 7.6% year-on-year growth in second quarter 2012)6. China’s onshore sovereign bond offers a higher yield than developed-markets government bonds such as those of the U.S. and Germany.

Table 2:10-Year government-bond yields comparison7

Region Rating Bond Yield Region Rating Bond Yield
China AA- 3.372% Hong Kong AAA 0.598%
U.S. AA+ 1.618% Singapore AAA 1.3%
Germany AAA 1.503% U.K. AAA 1.666%

Rate-cut potential favours bonds

With China’s inflation dropping to 2 percent and economic indicators slowing down (The Purchasing Managers' Index has dropped below 50)8, China may cut rates  further to weather the global economic headwinds. Generally speaking, a rate cut will benefit bond investment.

Potential RMB appreciation in medium to long term

The RMB has appreciation potential in the medium to long term, with an estimated increase of as much as 10 percent in five years. However, the currency may be subject to some two-way volatility.


  1. Source: Manulife Asset Management (Asia), as of October 10, 2012. Manulife Asset Management (Asia) is a division of Manulife Asset Management (Hong Kong) Limited. 
  2. Source: State Administration of Foreign Exchange of China, May 20, 2012.
  3. Source: Manulife Asset Management (Asia), Bloomberg, as of September 28, 2012, all calendar year figures are as of December 31 of respective year, except 2008. Manulife Asset Management (Asia) is a division of Manulife Asset Management (Hong Kong) Limited.
  4. Data as of October 31, 2008. 2012 and 2013 forecast figure is as of September 28, 2012. 
  5. Manulife Asset Management (Asia) is a division of Manulife Asset Management (Hong Kong) Limited. 
  6. Source: Bloomberg, as of June 2012. 
  7. Source: Bloomberg, as of September 6, 2012. Country ratings are sovereign ratings by Standard & Poor’s. The bond yield of China refers to its onshore 10-years government-bond yield. 
  8. Source: Bloomberg, as of September 10, 2012. China’s Consumer Price Index showed 2% year-on-year growth in August 2012 while the HSBC Purchasing Managers’ Index (PMI) in China region was 47.6 in August 2012.

Manulife Asset Management (Hong Kong) Limited is a Hong Kong distributor of the Manulife Global Fund and Manulife Advanced Fund SPC and provides you with personalized financial solutions. Over the years, the company has offered mutual funds, market views, investment information, promotion offers, customer services, diversified underlying funds of investment choices in other Manulife investment platforms, and other products and services. The company’s fund managers manage investment portfolios and strategies to help you capture potential investment opportunities and realize your financial goals.

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